Banks have to struggle with a lot of challenges – from issuing credit to operational risks, and technological troubles to good old fashion fraud. In addition to the risks of yesteryear, modern banks face falling long-term rates, growing fintech competition, and low profitability. In this challenging environment, savvy modern banks focus more of their attention […]
Banks have to struggle with a lot of challenges – from issuing credit to operational risks, and technological troubles to good old fashion fraud. In addition to the risks of yesteryear, modern banks face falling long-term rates, growing fintech competition, and low profitability. In this challenging environment, savvy modern banks focus more of their attention to mitigating risks.
Chief among these challenges are low-performing loan portfolios, which are a constant thorn in the side of lenders. For example, European non-performing loans stand above €1 trillion with more than one third of banks having NPL ratios above 10% (ECB, 2017).
This minefield of factors has driven lenders to seek out new ways to increase profits and cut funding costs in order to stay competitive.
Artificial Intelligence in Fintech: Will it take over?
“AI is a powerful tool for banks, thanks to its ability to harness vast quantities of data to learn more about customer patterns and behaviors”, says Steve Ellis, head of the innovation group at Wells Fargo.
As powerful as artificial intelligence (AI) is, traditional banking is still heavily reliant on statistical methods that were developed over half a century ago. Lenders determine creditworthiness based on 20+ data points, which leave otherwise worthy customers behind.
Modern machine learning (ML) makes it possible to go much deeper when analyzing data, and allows lenders to extract valuable insights from available data patterns.
According to a McKinsey report, a number of European banks have already replaced the antiquated statistical-modeling approach with machine-learning techniques. The results speak for themselves: a 10% increase in the sale of new products, 20% savings in capital expenditures, and a 20% decline in churn.
The data doesn’t lie: Lenders are betting on AI. Evidence of this modern trend can be seen in numerous ‘banks and fintech collaborations’ and AI-based software releases:
JPMorgan Chase pioneered a Contract Intelligence platform designed to “analyze legal documents and extract important data points.”
American MobileBank deploys AI software to lend to thin-file millennials.
Canadian TD Bank uses Layer 6’s AI engine for scoring and cybersecurity.
Deutsche Bank came out with new AI-based equities to predict their pricing and volume more accurately.
Wells Fargo employs its own AI team to provide more personalized services and strengthen digital offerings.
Bank of America Merrill Lynch implements HighRadius’ AI solution to speed up receivables reconciliation for their large business clients.
Logistic regression is no longer the de facto standard
Nine times out of 10, logistic regression is used to build scoring models and solve classification issues. Before it can take over and provide predictive results, there’s an important step of preliminary analysis and data quality control that must be taken. If the dataset contains:
imperfect and missing values, outliers and unstructured data;
numerical and categorical values (age, income vs marital status, education);
raw data that doesn’t fit strict parameters(data with fractions or decimals, etc.)
data analysts will spend days (if not weeks) just to preprocess the data before it can be assessed. Cutting corners and ignoring such data may lead to the loss of valuable insight and incorrect predictions.
How modern AI/ML methods build better risk models
Today, lenders have the ability to collect more data than ever about their clients. In addition to traditional socio-demographic data, this may include transactional data, records from credit bureaus, social media, Google Analytics, as well as other non-traditional sources.
Processing and interpreting this data so that it can be used to issue loans to worthy credit seekers is where modern ML/AI methods give banks the edge they need.
Machine learning techniques like gradient boosting, random forest, or neural networks can better find hidden dependencies in a dataset, which helps to gain more accurate predictions. This assists banks in determining how collected parameters in a dataset should be weighed to predict whether borrowers will consistently repay their loans on time.
This is made possible by data signals, which define significant parameters that affect the power of a scoring model. Depending on the type of business, geography, target audience, and data authenticity, significant parameters may differ. Modern ML can determine which data points contain the desired signal.
Traditional data sources like credit bureaus still remain an important part of the process and provide the data that contain the above-mentioned signal. Unfortunately, they do not cover noteworthy market segments such as millennials, self-employed entrepreneurs, small business owners, immigrants, or the unbanked.
The team at GiniMachine carried out pilot projects to build accurate scoring models with minimal data points and without access to an applicant’s credit history. Some of the most promising and predictive parameters included the applicant’s industry and occupation, the size of their company, the total years they’d been in business, the size of their family, and data from social networks like their overall activity, as well as the quantity and quality of their connections.
The team at GiniMachine has proven that it is possible to capitalize on information about borrowers that is collected from alternative sources to accurately and efficiently assess borrower’s credibility and make effective lending decisions.
Modern ML methods can build more accurate risk models because of their capacity to:
use built-in ‘raw’ data pre-processing tools
find hidden dependencies of arbitrary complexity
harness unstructured, big data, and data from alternative sources
The financial world, and lending businesses in particular, have seen major changes throughout the last few years. Using ML and AI in concert with traditional practices is the way forward for banks that want to remain competitive in the modern world. It’s clear that making good loans to the people of the future requires a futuristic helping hand.
Dmitry Dolgorukov is a CEO and co-founder of GiniMachine & HES, a technology entrepreneur, and an investor with over 15 years of executive experience in software development and fintech. In 2018, Dmitry was ranked as one of the top 200 Fintech leaders in Europe that contribute to the industry as influencers through action.
News Comments Today’s main news: Prosper tops 1 million loans. KBRA assigns preliminary ratings to SoFi Consumer Loan Program (2018-3) Trust. Elevate Credit earnings preview. Zopa CEO on FCA regulatory review. 60 firms apply for Hong Kong banking license. Today’s main analysis: Credit bureau earnings. Today’s thought-provoking articles: FCA to crack down on UK P2P lenders. What to expect in […]
Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to four classes of notes issued by SoFi Consumer Loan Program 2018-3 (“SCLP 2018-3”). This is a $546.00 million consumer loan ABS transaction.
Preliminary Ratings Assigned: SoFi Consumer Loan Program 2018-3
Seeking a fresh start in Silicon Valley, former Social Finance Inc. chief and co-founder Mike Cagney now admits that an affair with a subordinate was a reason for his abrupt departure last year from the firm.
Now, Mr. Cagney is adding another reason for deciding to leave a startup he led for six years. In an interview with The Wall Street Journal, he said that he had consensual sexual relationships with female subordinates, something he had previously denied publicly. He also said he had misled SoFi’s board of directors about one of the affairs.
Yet just months after Mr. Cagney departed SoFi, two venture capitalists who had been on the company’s board and knew many details of his actions invested $17 million in his new start-up, called Figure. Since then, Mr. Cagney has raised another $41 million from others for the lending start-up, which will open soon.
Mr. Cagney’s swift comeback — from ouster to new company took four months — provides one of the starkest illustrations of the speed with which the technology industry is moving past the sexual harassment allegations that swept Silicon Valley and many other industries over the last year.
In recent years, investors have started putting their money into peer-to-peer lending companies. By lending out your own money to peers in the form of personal loans, you are able to earn interest – similar to the way that banks and other lenders produce income. On sites such as Lending Club and Prosper, you can open an account and begin investing in this passive income venture.
Like all investments, the ROI varies, but Lending Club and Prosper boast an average investment return of about 5 – 10%. Both of these platforms also give opportunities for users to make their investment semiautomatic, meaning you wouldn’t need to constantly monitor your investments or reinvest returns. But there would still be some work involved. If you want this to be a completely passive income stream, Lending Club offers a PRIME account, in which you’ll have a fully managed account. You’ll need to have a minimum investment of $5,000, though, and it will be subject to a one-time .8% fee.
According to recent findings from Kabbage, a financial services and data platform, 85 percent of small business owners believe that being your own boss and owning a business is achieving the American Dream. In addition, 84 percent said they hope their children will also one day become small business owners.
The survey, which consists of responses from more than 1,000 small business owners, found that 38 percent of those who hope their children become entrepreneurs feel that way because they want them to turn their passion into a career. 24 percent appreciate that being their own boss allows them to create a flexible schedule. And 22 percent feel that building a small business is rewarding, and they want their kids to feel that sense of pride.
ArborCrowd targets IRRs from 12 percent to 15 percent in top-tier markets and IRRs in the mid-teens or low 20s in secondary and tertiary markets, according to Adam Kaufman, co-founder and managing director of the online crowdfunding platform.
Millennium Trust Company, LLC, (“Millennium Trust”) a leading retirement and custody services provider to advisors, financial institutions, businesses and individuals, announced today the launch of its enhanced education platform on the Millennium Alternative Investment Network (MAIN). MAIN is a free research, education and alternative investment resource to help investors and advisors increase their understanding of alternative assets, and invest through simplified and streamlined investment processes.
This past Friday, the UK Financial Conduct Authority (FCA) finally released their reviewof the crowdfunding industry regulations. While the investment crowdfunding sector (equity crowdfunding) came away mostly unscathed the loan based sector (or peer to peer lending) took a bit of a lashing.
The FCA said the peer to peer lending had become “increasingly complex” and sited occurrences of operations that lacked transparency and instances where interest rates were not matched with the appropriate level of risk. The FCA subsequently announced a new consultation as it looks to firm up compliance for UK online lenders. Gillian Roche-Saunders, a partner at the law firm of Bates, Wells & Braithwaite – and Fintech expert, said this will be “the foundation of a much more sophisticated and targeted supervisory approach from the regulator.“
Zopa CEO Jaidev Janardana welcomed the reappraisal and added scrutiny of P2P operations calling it a positive step. Janardana said they “wholeheartedly agree” with the FCA assessment;
The Financial Conduct Authority is looking to tighten up oversight over crowdfunding platforms, which provide short-term lending for small businesses and consumers, in part to make sure customers have clear information about the rules, terms and conditions.
A 156-page report by the watchdog found that some customers were subject to poor practices by certain online platforms and that they were provided with unsuitable products and poor treatment.
The reform measures have been backed by platforms like Funding Circle, a leading crowdfunding lender, as a way to gain more legitimacy as competition heats up with traditional banks. RateSetter, one of the three-largest P2P lenders in the U.K., has also sought clarity on regulations as a means to better compete against established banks.
The Financial Conduct Authority (FCA) has opened a consultation on loan-based crowdfunding platforms (peer-to-peer) following its original review of the sector in 2016.
It said since then, it’s observed that the new and growing area has become increasingly complex and has found evidence of “poor business practices” that could cause actual or potential harm to investors.
For example, P2P platforms have a much more active role by taking decisions on behalf of investors, structuring the loans they’re exposed to, and splitting loans across a number of investors (lenders) in order to receive a target rate of return.
Rhydian Lewis, chief executive, RateSetter-“I believe peer-to-peer lending will become a part of every investor’s diversified portfolio and the proposals from the FCA do not change that belief.”
James Meekings, co-founder and UK managing director of Funding Circle-“Funding Circle has consistently campaigned for proportionate regulation that protects consumers, whilst allowing innovation to boost choice and competition in the lending and investment markets.”
Stuart Law, chief executive at Assetz Capital-“While we have just received this latest FCA consultation document, and therefore have not as yet fully digested it, we will always be supportive of any regulation that ultimately benefits our investors, borrowers and the wider peer-to-peer industry. Proposals that advocate greater transparency, appropriate investor remuneration and good corporate governance are very much welcome.”
When SagaDigits, a HK$2 million (US$254,820) start-up, wanted to add post-merger shareholders and signatories to its corporate bank account, its chief executive approached a Hong Kong bank for help.
What happened next turned into many months of back-and-forth paperwork and arguments with the lender, said the company’s chief executive officer, Arthur Chan. He even spent a month tracking down his bank relationship manager after the staff was relocated to another branch.
Good news may be at hand for him, as the Hong Kong Monetary Authority (HKMA) is poised to issue the city’s first virtual banking licence by year’s end to promote fintech and offer customers “a new kind of experience.”
Ning Tang, founder and chief executive officer of CreditEase, a Chinese wealth-management firm and the majority owner of U.S.-listed peer-to-peer lending platform Yirendai, talks about China’s P2P lending industry. He speaks with Tom Mackenzie on “Bloomberg Daybreak: Asia.”
Trend #1: Further development of payment and money transfer solutions., FinTech incumbents started historically with niches that were on the one hand abandoned by traditional banks and, on the other hand, not as strictly regulated. That is why there has been more transaction service providers originating in the region, compared to different types of FinTech companies.
Trend #2: Business-to-business. Retail banking requires relatively more effort and brings in lower returns in exchange than servicing Small and Medium Enterprises (SME’s), not to mention large enterprises, which has been one of the remaining strongholds for banks (aside from trading, mortgages and services for corporations). Therefore, FinTech startups began offering their products to individuals but are slowly entering the corporate sector.
This week we took a closer look at the Irish startup scene with the goal to introduce you to some of the most promising startups from there. Below you’ll find 10 Irish startups to look out for in 2018 and beyond.
Flender: Successfully funded through the Seedrs equity crowdfunding platform, Dublin’s Flender is a peer-to-peer (P2P) lending platform for businesses and consumers to borrow and lend money through their existing networks. Flender was launched in early 2017, offering a combination of social network, low-interest rates and an excellent mobile experience. They have so far raised €2 million from investors to formalise the social lending market among friends, family and business connections.
Libra Credit, an online lender in the cryptocurrency space, has received an investment from Binance Labs – the tech incubator and VC portion of Binance – one of the largest cryptocurrency exchanges in the world.
According to a post on Medium, the agreement enables BNB holders to receive loans collateralized by the crypto. So Libra Credit will lend fiat and digital assets to users who pledge BNB.
Known for being the first-ever instant, cryptocurrency-backed loans provider, Nexo took to Twitter to express its offering to acquire what remains of SALT Lending, a membership-based lending and borrowing network and a worthwhile competitor.
The tweet made on July 27, 2018, made it seem as if the Nexo was doing a favor or “lends a helping hand” to its competition, while sharing its willingness to “provide instant liquidity to its community, up to $2,000,000 per client without “proof-of-access” requirements.” To add to this public announcement, the firm also shared what appears to be its letter of intent to SALT Lending.
Global Debt Registry (“GDR”), today announced two new executive hires from the banking industry. Evan Psaropoulos, formerly of Credit Suisse, has joined GDR as CFO, and Patrick Dietz, formerly of BNY Mellon, has joined the organization as Product Director. This follows Charlie Moore assuming the role of Chief Executive Officer, in addition to President, in recognition of his leadership and vision.
In his role as CFO, Evan will oversee the finance function within GDR, including overseeing equity financing and commercial strategy. He will lead investor relations for GDR across the capital markets space leveraging his investment banking and corporate development experience.
Prospa, a leading online lender for Australian SMEs, has received a nice recognition being named National Fintech Lender of the Year in the 2018 MFAA Excellence Awards.
The Mortgage & Finance Association of Australia or “MFAA” is the national body representing finance brokers, mortgage managers, lenders, aggregator/broking groups and other industry participants, in the mortgage and finance industry in Australia.
The MFA also recognised Prospa’s Roberto Sanz as the National Winner of Business Development Manager in the Lender and Support Service Provider category for 2018.
It has been a very active half year in the Australian Alternative Finance (AltFi) market. Since my previous wire on the key themes expected for 2018, the market has continued to grow and evolve. The themes were: 1) Continued Growth, 2) Consolidation of Lenders; and 3) Transparency via Listings.
These themes have been present in the first half, however we have seen two other themes present that will accelerate the development of the Australian Fintech lending market. One being the participation of banks in funding the AltFi lenders, the other, Government support for SME lending.
The Peer to Peer or P2P lending market has doubled in China. Though it might be at a nascent stage in India, according to co-founder of P2P lending platform i2i Funding Raghavendra Pratap Singh, it has a lot of potential. In a chat with The Tech Panda, Singh explained the intricate process and i2i Funding’s plans for the future.
I2i Funding had started with loan amounts of INR 10-15 lakhs per month, and now are doing INR 1.5 crore. Currently, they have around 30,000 registrations for borrowers and around 4000 for investors. They add around 200-300 new investors per month. So far, the company has disbursed over 500 loans of over INR 8 crores.
Many individuals still consider keeping money in their bank savings accounts akin to investing. Yes, it earns an interest rate but over a longer period of time, the earnings heavily fall short of negating the impact of inflation.
Currently, most banks offer 4 percent or even lower return on their savings accounts. It, therefore, becomes important to look out for other better alternatives and investment options to make your money earn you money.
Imran Khan has claimed victory in the 2018 Pakistani election for his PTI party after a campaign that has been marred by violence and allegations of vote rigging. Although Khan’s party is expected to fall short of an overall majority and would have to form a coalition, his economic policies have been questioned.
Can you describe the development of peer-to-peer lending in MENA? Marketplace lending is still a relatively new phenomenon in the MENA region. A big part of what we do is to educate investors in the potential for diversifying their existing portfolios with a different type of investment. It offers them a wide-range of choice as investors are able to browse through campaigns and select the ones that match their criteria best.
Liwwa only lends to small and medium enterprises (SMEs), and we continue to scale up that lending activity. As our underwriting activity grew from $2.3 million in 2016 to $5.2 million in 2017, the level of funding from retail investors nearly doubled. Retail lenders want to see a credible company, a solid portfolio and a low default rate. As long as Liwwa continues to deliver on those three criteria, we can build trust in the platform and hopefully build an ongoing relationship with new and existing investors.
Over the last 18 months banks have significantly scaled back lending activity to the SME sector. How as this affected P2P lending activity in the region? IFRS 9, with its provisioning rules, is one of the main drivers of banks’ reticence to lend to SMEs. The market demand for loans hasn’t appreciably changed, and one could argue that market risk has stabilised in many MENA economies—so the accounting rule change is having an outsized impact. Alternative financing structures such as these are poised to fill a need because much of the debt is treated on an off-balance sheet basis. Retail lenders and non-bank institutions can contribute to filling the SME lending gap given a difference in risk appetites and a more generous perspective on solvency ratios.
When societies were small and closed-off, people lent freely among themselves based on trust. At worst, the lender believed that he could take up his case with the local community. But as globalisation and technology came, people began to migrate, and personal lending became inefficient. The solution? Banks.
At the centre of this story is FINT, a Nigerian online peer-to-peer lender founded in early 2017. The idea is simple. Emeka signs up to the FINT platform and requests for a loan. Chinyere signs up, funds her account, and chooses which loan(s) she wants to finance from a pool of anonymous borrowers. In its simplest form, Emeka wants ₦120,000 for six months, and Chinyere lends it to him and gets monthly payments of the principal (₦120,000) and interest (e.g. 10%) every month – or ₦13,200 each month.
FINT has been pioneering this simple form of lending in Nigeria. Its aim to “empower Nigerians by making loans more accessible and affordable; and lending more rewarding” speaks to the core idea of peer-to-peer lending.
The Central Bank also issued Circular 3,898 in May 2018, which set out the procedural rules for establishing such entities.
The Central Bank has introduced these rules in order to continue the modernisation of Brazil’s financial sector – something which has been ongoing since 2013, with more intensive actions being taken since 2016. The main goals of the rules are to:
Established in Russia in 2014, Scorista was born out of the need for a reliable risk-scoring model for Russian lenders. Leveraging the skills of famed Russian programmers, Scorista has created the go-to risk management solution for lenders operating in the sub-prime short-term lending segment. How Scorista Began Maria Veikhman, a business management, IT, and risk […]
Established in Russia in 2014, Scorista was born out of the need for a reliable risk-scoring model for Russian lenders. Leveraging the skills of famed Russian programmers, Scorista has created the go-to risk management solution for lenders operating in the sub-prime short-term lending segment.
How Scorista Began
Maria Veikhman, a business management, IT, and risk management specialist is the founder and CEO of Scorista. It took off when a few lenders in Russia realized the dearth of reliable risk managers in the market and asked Veikhman to create a risk-scoring model for their lending businesses. Scorista was born as a disruptive innovation to automate the area of credit assessment and provide clients with an instant credit decision. They believe they can help lenders achieve the desired KPIs in a very short span of time with a guarantee of results.
What gave impetus to the company was the dearth of risk management solutions for short-term lenders and payday lenders. They only have access to the FICO score, which is not a very bankable option for payday lenders.
More On Scorista
Scorista offers a broad variety of products ranging from credit assessment to underwriting plans, verification plans, individual scoring, and variable kits, which facilitate scoring and dossiers that legally provide access to complete information about the borrowers. Its prime spot is borrowers looking for less than $5k for less than 12 months. According to Veikhman, Scorista has a 93% forecast accuracy rate. This is much higher than anything available for the segment currently.
This performance has led to profitable growth with offices in China and clients in Russia, China, Kazakhstan, Spain, and Latvia. It has just launched its services in the United States. More than 142 lenders are currently using the Scorista platform, and it is processing over 500,000 applications every month. According to its website, Scorista has helped its partners earn an additional $145 million.
The company has raised an undisclosed amount of funding from Life.SREDA.
Scorista’s Business Model
Scorista’s business model is transactional-based. In Russia, Scorista charges an estimated $1K for every credit decision depending on the volume of applications. Credit lenders are provided with credit decisions instantly so that they can further approve or deny a loan. When the borrower files a loan application with the lender, the lender communicates the borrower file through an API or web interface. Its system receives the application, evaluates the same with its scoring algorithm, and provides a credit decision for approval or denial of the loan. In cases where the scoring algorithm depicts that the borrower can’t repay the loan, Scorista works out different models to predict the amount that the borrower can pay. So if a borrower is rejected for a $2,000 loan for a 3-month period, Scorista will additionally provide that he is a good bet for $1,000 for a 1-month period.
Scorista has developed artificial intelligence and machine learning-powered proprietary algorithms for its scoring systems. It keeps fine tuning its algorithms to ensure optimum performance. It is focusing only on its specialization of short-term micro-borrowers to ensure highest efficiency rates in the segment.
The money-back guarantee is Scorista’s USP. Scorista is ready to refund the fees to its clients if they are not satisfied with its services. Others in the industry are generic players looking to cover the entire market rather than specializing in any one segment. In the name of alternative data, many peers focus exclusively on the social media footprint. However, research shows that decision-making based on social networking is not very reliable as the quality and quantity of information available on borrowers is circumspect. Moreover, about 40% of borrowers do not have extractable social media information available.
Scorista has also introduced Mindscore, a psychometric scoring method that uses a social networking profile and psychometrics to score borrowers. It helps in predicting repayment ability, and the default rate of the applicant.
According to Veikhman, using alternative data in the credit model is dependent on the country. Credit bureaus across Russia have a lot of data on borrowers, and, as such, alternative data is not able to add a lot of weight. But there are no reliable credit bureaus in China so a lot of e-commerce data from Alipay, Wechat, and other social media is put to use. The company is also using mobile data in some cases and incorporates details like the workplace of the borrower to make a credit decision.
The Russian and Chinese branches of Scorista have launched a white label product for mobile applications for lenders. It facilitates fast issuance requiring the borrower to download the application and then submit information to the lender. Scorista performs the function of scoring and the lender can directly issue money through the application, credit card, debit card, or bank account.
Scorista mainly integrates with short-term lenders and specializes in facilitating short-term loans. Although banks have a broad line of products, Scorista can work with banks that deal in short-term loans apart from full-term loans.
The sub-prime segment that Scorista specializes in is growing across the world. The global economy is not getting better, and many economists agree that it is in the last legs of the growth phase. The last recession was in 2008-09, so considering a cycle of 10 years, we are looking at a recession sooner rather than later. Also exacerbating the trend is the fact that the number of people drawing a lower than average income is increasing in every nation across the world.
Borrowers with low credit scores can improve their credit ratings by following a regular, structured repayment schedule. This will enable them to have access to better loans and banking products with lower rates of interest. Scorista,, with its credit models, helps borrowers gain that access to credit at the right time for the right amount.
Scorista’s Future Goals
Scorista is looking to expand across global markets. It is looking for partners in multiple countries to expand its offering. It is also looking to onboard well-connected financial investors who can help introduce them to their lending networks.
Scorista wants to establish itself as the FICO score for the sub-prime borrower segment. Its key differentiator is its specialization in only short-term microlending and its money back guarantee. The company has been able to build a solid business and is on the precipice of breaking into the big leagues.
News Comments Today’s main news: SoFi to roll out deposit accounts, debit cards next month. PeerStreet raises $29.5M. Welendus loanbook hits 100K GBP in 3 months. Weidai plans $400M IPO. Instamojo to expand into SME lending. Today’s main analysis: Banks slow fintech investment, revert to their own digital infrastructure plans. Today’s thought-provoking articles: Credit bureaus aren’t going anywhere yet. Blockchain […]
The credit bureaus aren’t going anywhere yet. AT: “Paradigm shifts aren’t overnight sensations. The word ‘revolution’ is overplayed. The credit bureaus are still relevant, but alternative data is forcing them to alter their business models to accommodate a growing and expanding market.”
LendingTree’s personal loan offers report. AT: “The LendingTree reports were edged out by the Tearsheet analysis on banks’ investment in fintech by a hair as the main analysis for today. That doesn’t mean these aren’t great reports with important insights into the market. Last month, for instance, lenders offered borrowers less money than in February.”
Mortgage offers report. AT: “Refinance offers went up. APRs were up. There is plenty here to sink your teeth into.”
Social Finance Inc. said it will start offering deposit accounts and debit cards to some customers next month, the first major new product under Chief Executive Officer Anthony Noto.
The San Francisco-based company is looking to branch into various financial services as Goldman Sachs Group Inc. ratchets up pressure on SoFi’s profitable center of personal loans. The startup unveiled a banking-like product, called SoFi Money, in January and began accepting applications to a waiting list.
The biggest driver of the investment gap between men and women isn’t knowledge or other financial obligations, but fear, according to a new study by SoFi and professional networking site Levo League (Levo).
However, while millennial women are extremely active in managing their financial status, and over 50%+ have the means to invest each month, the study found the majority of millennial women do not to invest due to fear (56%). Furthermore, the study results indicated the top two reasons why millennial women do not invest is because they don’t know where to start (25%+) and because they are paying down their debt (25%+).
Lenders offered personal loan borrowers less money than they did last month, while offered APRs were mixed. Rate and loan amount offers varied widely among consumers, depending on factors including, but not limited to, credit score, income, and current debt obligations.
Excellent credit (760+ score): Offered APRs to consumers with a credit score of 760+ averaged 7.42% in March.
The average best APR offered to all borrowers with credit scores of 760 or above was 7.42%, a decrease of 2 basis points from the prior month, and down 22 basis points from the same period one year ago.
At $22,644, the average loan amounts offered with the best APRs to all borrowers with a score of 760 and above was down 4.61% ($1,045) from February, but up over 17.60% ($3,986) from the same period one year ago.
The top 10% of offers, presented to borrowers with the best profiles within this group, had offered APRs of 4.87% on average, and loan amounts of $35,669. A borrower with this APR and loan amount would save $3,021 by consolidating debt with a 10% APR over a three-year term.
Good credit (680 – 719 score): Offered APRs to consumers with a credit score between 680 and 719 averaged 15.89% in March.
The average best APR for all borrowers with credit scores of 680 – 719 was 15.89%, up 20 basis points from last month and 139 basis points from a year earlier.
At $15,993, borrowers with scores of 680 – 719 saw the amounts offered with the best APRs decrease by 175 basis points ($279) in the last month, but increased by 242 basis points ($386) from March 2017.
The top 10% of offers, presented to borrowers with the best profiles within the 680 – 719 credit score range, had an average best APR of 7.00%, offered with an average loan amount of $23,822. A borrower with this APR and loan amount would save $3,250 by consolidating debt from a 15% APR over a three-year term.
The most common reasons for seeking a personal loan are credit card refinancing and debt consolidation. These two categories comprise 63% of all loan inquiries.
March’s best offers for borrowers with the best profiles had an average APR of 4.25% for conforming 30-year fixed purchase loans, up from 4.22% in February. Refinance loan offers were up 11 bps to 4.24%. Mortgage rates vary dependent upon parameters including credit score, loan-to-value, income and property type.
For the average borrower, purchase APRs for conforming 30-yr fixed loans offered on LendingTree’s platform were up 5 bps to 4.85%. The loan note rate hit the highest since March 2016 at 4.75% and was also up 5 bps from February. We prefer to emphasize the APR as lenders often make changes to other fees in response to changing interest rates.
Consumers with the highest credit scores (760+) saw offered APRs of 4.72% in March, vs 4.99% for consumers with scores of 680-719. The APR spread of 27 bps between these score ranges was unchanged from February and still near the widest since this data series began in April 2016. The spread represents over $14,000 in additional costs for borrowers with lower credit scores over 30 years for the average purchase loan amount of $238,593. The additional costs are due to higher interest rates, larger fees or a combination of the two.
Refinance APRs for conforming 30-yr fixed loans were up 6 bps to 4.83%. The credit score bracket spread remained at 24 bps, amounting to nearly $13,000 in extra costs over the life of the loan for lower credit score borrowers given an average refinance loan of $239,668.
Average proposed purchase down payments were little changed at $62,758.
PeerStreet today announced the close of a Series B funding round of $29.5 million to continue driving the company’s mission of democratizing access to real estate debt.
The Series B round was led by World Innovation Lab. Existing investors Andreessen Horowitz, Thomvest, Colchis Capital, Felicis Ventures, and others participated along with new investors Solon Mack and Navitas Capital. The raise will accelerate PeerStreet’s growth. Specifically, PeerStreet will be broadening the type of real estate loans it cultivates from its network of lenders and hiring more world-class talent.
RealtyMogul announced that it has completed an investment in a $11.9 million multifamily apartment portfolio in Plano, Texas, consisting of 156 units.
The property was acquired through a partnership with Comunidad Realty Partners, a dynamic real estate investment firm specializing in multifamily apartment communities in densely-populated Hispanic neighborhoods. Comunidad reports to have owned and managed over $600 million in multifamily assets overall, comprised of approximately 8,200 units. RealtyMogul has invested with Comunidad Realty Partners on five previous transactions.
Stripe has made its name by providing developers with a simpler way to start charging customers and handling transactions, but today they hope to take another step by launching a billing product for online businesses. That’ll allow them to handle subscription recurring revenue, as well as invoicing, within the Stripe platform and get everything all in the same place. The goal was to replace a previously hand-built setup, whether using analog methods for invoicing or painstakingly putting together a set of subscription tools, and make that experience as seamless as charging for products on Stripe.
While this is a tool that’s a natural fit for something like Stripe, it’s certainly one that’s created a substantial business opportunity. Last month, Zuora — an enterprise subscription services company — filed to go public amid a fresh wave of enterprise IPOs that included Dropbox and Zscaler (and also, to a certain extent, Salesforce’s big acquisition of Mulesoft). Zuora’s subscription services revenue continues to grow, showing that Stripe will certainly have competition here, but also that there’s a large market opportunity.
Today, FinTech companies, marketplace lenders, traditional banking institutions and many other types of innovative new lending platforms are using loan pricing systems to sharpen their focus on balancing shareholder returns with customer pricing sensitivities and market demands.
The lending landscape is changing, but the need to achieve an adequate rate of return while delivering fair and accurate pricing, remains a constant.
There are a variety of strategies to consider ensuring attaining a reasonable return on your investment in a loan pricing system. We’ll cover each of these in the form of short case studies that we’ve taken from one or more of our existing clients’ actual experiences.
Enhanced Loan Yield Quantitative analysis can be easily used to measure the effectiveness of the loan pricing system implementation on a pre-test / post-test basis. The technique used relies on the same Funds Transfer Pricing (FTP) methodology which a robust loan pricing system uses to calculate loan profitability. To illustrate this, we’ll use a recent client implementation of LoanPricingPRO at a $1 billion lender.
Increased Collection of Loan Fees In today’s highly competitive environment with historically low rates and generally weak loan demand, loan fees are often sacrificed, or at least underutilized as a tool for increasing profitability. As a general rule, the shorter the loan term, the more powerful the impact of loan fees on loan profitability and ROE.
Decline in Lost Opportunities-Lenders using LoanPricingPRO® usually have a higher batting average when measuring the number of new loan clients against the total number of requests received or applications taken.
Active Portfolio Management-When implementing a loan pricing system with an interface to the organization’s core data systems, significant new reporting capabilities are attained. Lenders are able to receive reports on and track trends in loan officers’ portfolios.
Improved Discipline, Accuracy & Pricing Consistency-As has been shown, it is possible for senior management teams and lenders working
together and aided by an accurate and appropriately calibrated loan pricing system, to significantly improve the return performance and growth rate of the lending client base.
More than a third of Americans would give up their right to vote for a 10% annual pay raise, according to a new survey.
The peculiar findings come from a survey conducted by LendEDU, an online student loan marketplace, that polled 1,238 working Americans. In exchange for the hypothetical pay bump, about 35% of these employees said they would sacrifice their voting rights for life. In addition, just over 9% of respondents said they would give up their children’s (or future children’s) right to vote for life for the make-believe raise.
But those aren’t the only big sacrifices the respondents would make for a 10% annual salary increase. More than 12% said they would break up with their partners, and nearly 19% said they would give up their health insurance for the next five years. Forty percent would forfeit their dental care for five years for a raise, and nearly 18% would say goodbye to their Social Security benefits.
As tech giants like Amazon, Facebook and WeChat set out on their quest to be all things to all people, eroding the boundaries between industries, banks that want to maintain and grow their market share need to rethink the rules of competition.
While a growing number of banks have acquired fintechs to avoid fading into the background (
LendingClub and Prosper, for example, are both in the peer-to-peer lending space. LendingClub has fixed personal loan rates ranging from 5.99% – 35.89%. You’ll need to check your rate with Prosper directly since it varies depending on your credit and borrower profile.
inFactor Corp, an integrated financial technology company providing liquidity solutions across the spectrum of non-bank lending, has announced today that Ethan Schwarzbach has joined the company to head up the company’s new inFactorIQ platform.
Mr. Schwarzbach joins inFactor from Orchard Platform where he most recently served as a Manager on the Business Development team. Orchard Platform is the leading provider of data, technology, and software to the online lending industry.
According to a recent statement, SoLo’s founders uniquely understood the plight that American workers were facing every day because they too were once in their shoes. It is not uncommon to seek a small loan from friends and family, but the founders were not seeing a quick and easy lending solution to help facilitate the process.
Traditional banks don’t lend small dollars, and payday lenders charge excessively high interest rates that for many in emergency situations are almost impossible to pay back. There was simply no affordable way to get a small dollar loan. The team thought that the limited resources for small-dollar loans only plagued the minority communities like the ones they were raised in, but that was wrong; they discovered a more mainstream problem. According to the statement, 78% of American workers live paycheck to paycheck and 47% of the country can’t cover a $400 emergency expense without borrowing from someone else or selling a personal asset.
Liquid FSI, a direct lender and creator of the Convert2Pay platform, which provides on-demand payment for medical invoices, added Barry Blecherman to its Board of Advisors.
While a few recent graduates of the NYU Tandon School of Engineering were helping the Liquid FSI team with some algorithms for their technology platform, they mentioned Blecherman, a professor of Finance and Risk Engineering at the Tandon School.
Research by payments provider Klarna shows that discounting is no longer confined to the traditional winter and summer sales. The new rules of retail mean discounting has become a fluid and unpredictable phenomenon with over half (57%) of consumers expecting regular sales.
The research of 500 British retailers highlighted the negative impact this can have on the bottom line of merchants. Over half of retailers surveyed (53%) say the “always on” nature of sales is having a negative impact on profits – 11% said discounting cost them over £25,000 throughout 2017. This isn’t felt just by smaller retailers, but merchants of all sizes – in fact, it’s those with 100-239 employees that feel the burden most with 66% saying constant discounts are impacting profits.
Stewart Cazier, of alternative lending platform Thincats, details what investors need to know about peer to peer, crowdfunding and Innovative Finance Isas on the Investing Show.
He explains to Simon Lambert, of This is Money, and Richard Hunter, of Interactive Investor, how alternative lending works, what investors need to consider, how to diversify and why it’s important not to consider it risk-free or put all your eggs in one basket.
Ask Inclusive Finance (AskIf) is a commercial enterprise with an ambitious social mission – to close the sizeable funding gap for loans to financeable small companies unable to secure funding from banks. Smaller estimates suggest this funding gap could be upwards of £2.2bn per year.
Other research estimates much larger numbers. AskIf is a platform lender bringing together funders, a network of lending partners and the borrowers themselves. By providing support and funding to small companies, we’ll enable job creation, economic value and opportunity in many communities across the UK.
JP Jenkins reports that its co-owner, Peterhouse Corporate Finance, has closed its 200th capital raise in the past three years, with a total funding of circa £200m for smaller growth companies.
Significant new capital has recently been provided by Malcolm Burne, a substantial shareholder and Executive Director, to expand the JPJ franchise further. The Company has also entered into partnership & collaborative agreements with US Capital Partners, private placements, Equidate a US private companies Stock Market, and Primary Markets an International Unlisted Exchange.
There hasn’t been a major listing of a Chinese financial technology company in the U.S. or Hong Kong since LexinFintech Holdings Ltd., which raised $124 million in a downsized U.S. IPO in December, according to data compiled by Bloomberg. Qudian Inc., which completed a $1 billion IPO in October, has since fallen 52 percent from its offer price.
INNOPAY has defined a first set of use cases for insurance companies. The use cases have been mapped on the most important value levers for insurance to capture relevancy and see where exactly the use cases drive value. The mapping is presented in figure 1 and a first description of the cases is given below.
New (cyber)insurance product for a new client segment: insure TPPs in PSD2 landscape: data sharing through third parties implies new (cyber) risks and thus accountability in case of data breaches.
Better deal engines: PSD2 provides third parties access to payment account information data (AIS). This data can be mined and relevant insights on customer behaviour can be extracted. This behaviour can then be for example spending on insurance to see if a better offer can be made to the customer or looking for patterns which can imply a better risk profile and thus better pricing on insurance products for the customer.
Improve personalised advice: next to mining, the data can be used to improve personalized advice. Although TPPs are by law only allowed to present the account information of customers, insurance companies can use that information to give advice about their financial situation.
Optimise claims management: together with other data sources, account information that is shared by customers’ banks can be used to create new data sets that could be used to improve reconciliation and reimburse the right amount to customers and gain better insights on possible fraud (by looking at for example customer spending patterns).
Up to date customer records: although there is no Open Banking standard yet and all banks are developing their own view and strategy on opening up data beyond PSD2 compliance, there are already good examples insurance companies can build upon.
Expanding service proposition to providing accounts: with the possibility to execute a transaction (PIS) on behalf of the customer or to check available funds (CAF) the functional scope of PSD2 is limited.
Digital identity verification: banks can help in identifying a person during a digital onboarding or digital identity verification process. This functionality is for example already operated by the banks in The Netherlands under the iDIN scheme.
A Swiss crowd-lending platform is using the blockchain technology to improve the way it brokers loans to companies. It will also introduce tokens as a currency of valuation.
Swisspeers, a Winterthur-based platform specialized in loans to small- and medium-sized companies is registering transactions on the Ethereum blockchain. The company is going to use the so-called Smart Contract developed specifically for its purposes, Swisspeers said on Thursday.
Banks’ investment in fintech companies is slowing down as they refocus on improving core banking infrastructure, according to a report by CB Insights.
The Banks in Fintech report, released this week, found that banks have been foregoing big investments and partnerships over the past five quarters with a preference for building products in house — particularly in lending, payments and personal financial management. In both the U.S. and Europe banks spent more of their architecture investment dollars on capital markets software companies than blockchain startups.
KPMG’s Pulse of Fintech report for the fourth quarter of 2017 noted that while deal activity among venture capital and private equity firms remained steady compared to 2016, the earliest stage of VC financing could see fewer deals and a volume decline in particular segments like online lendingin the coming year. It’s a sign of the industry’s maturity; banks are showing their efforts to “fight fintech with fintech,” Lindsay Davis, an intelligence analyst at CB Insights, said in a presentation.
In every step of the trade financing process, blockchain technology seems to offer an efficiency boost in commodity transactions and the global supply chains. From contract generation level, which includes time-consuming reviews of the operation by the Letter of Credit issuing bank, to the settlement level, which often proves problematic due to payment platform incompatibility, fintech offers smart solutions.
Although credit fintech is on the rise, blockchain was mostly used for peer-to-peer lending and that the trade financing gap persists, according to the Asian Development Bank. 70% of financial institutions which responded to the survey claimed that the technology would allow for greater exposure to SME risk, mostly because of significant cost reduction in compliance and due diligence.
But it’s increasingly clear that many of the financially underserved are also technologically underserved. The GSMA’s Mobile Economy 2018 reports that nearly 40% of the world’s 5 billion mobile subscribers have no internet access; most of the offline, live in the low- and middle-income countries that could benefit the most from digital financial services. Many mobile subscribers live outside of 3G or 4G signal range, which slows service or limits what they can do with their devices. Many unconnected users must contend with poor network performance, high connectivity and handset costs, poor digital literacy, or a lack of locally relevant content.
Digital lending innovations: Small businesses face a $5 trillion financing gap. Inefficiencies in customer acquisition and analysis prevent lenders from making reliable lending decisions and entrepreneurs from getting the financing that they need. But new technologies and data sources can help small businesses: Mexico’s Konfio analyzes thousands of data points – including biographic information, financial history, electronic invoicing, and social media usage – to make lending decisions quickly and inexpensively.
Online payment solution provider Instamojo Technologies Pvt. Ltd plans to expand into business loans, logistics and advertising services for small merchants, as more small and medium enterprises (SMEs) turn to digital means to sell and market their product, a top company executive told Mint.
Bengaluru-based Instamojo, which focuses primarily on SMEs, currently has 400,000 SMEs using its payment service, and it is also targeting to onboard at least 1 million SME customers by the end of FY19, the company’s chief executive Sampad Swain said in an interview.
Investment avenues are available either in the form of instruments per se (e.g. equity stocks, bonds, etc.) or as vehicles for participating in the instruments e.g. Mutual Funds, Portfolio Management Services, Alternate Investment Funds, etc. Some of the vehicles are available in small ticket sizes, e.g. Mutual Funds, whereas some require a sizable ticket e.g. PMS (Rs 25 lakh) or AIF (Rs 1 crore). There is a differentiated investment avenue, which is neither a tradable instrument nor a structured vehicle, but a facilitator for retail investors. This is called Peer to Peer (P2P) Lending where there is an online intermediary, which brings the lender and borrower together to facilitate direct lending by the lender to the borrower on mutually agreed terms. This is an online marketplace where the digital platforms like e.g. IndiaMoneyMart would conduct due diligence and credit assessment of the borrower and connect the two individuals.
Canadian fintech lender PayBright announced on Thursday its e-commerce financing solution is now available for merchants operating the IBM Websphere Commerce platform.
According to PayBright, the e-commerce solution integrates with merchant’s e-commerce platforms and provides Canadian customers with an additional payment option at checkout. Upon selecting PayBright as a payment method, customers can finalize their purchases in a matter of seconds. Merchants then receive their funds directly from PayBright the next business day with no credit risk. Customers then pay for their purchases in affordable monthly installments over time, with interest rates as low as 0%.
Reports estimate that over one-third of the American population has no record in any of the credit bureaus and, therefore, have no credit history. Millions of Americans do not have access to financial services, and this is an even more common scenario in developing markets. Over 80% of the African population do not use lending […]
Reports estimate that over one-third of the American population has no record in any of the credit bureaus and, therefore, have no credit history. Millions of Americans do not have access to financial services, and this is an even more common scenario in developing markets. Over 80% of the African population do not use lending or banking services because they have no fixed income. The situation creates a question mark on the relevance of traditional credit scoring agencies and their impact over the larger population. Thankfully, fintech innovators are heading towards new, alternative data sources like rent payments, cell phone data, and even social media usage to evaluate credit risk. The aim is to replace traditional credit models with a more complete assessment of a prospective borrower. The focus is to create a win-win situation for both lenders and loan seekers by providing a new foundation to lenders for credit underwriting and providing millions of borrowers a chance to step up on the credit ladder.
The Current Credit Scenario
People with a low or no credit score find it impossible to prove their eligibility for loans. The most disenfranchised are minorities and women. This then creates a vicious circle as they can’t get a loan due to no score, and they can’t improve their score because no one is ready to give them credit.
Currently, the credit score of a person is calculated depending on the information in his credit reports. This information consists of the person’s name, phone number, social security number, employment information, account information, loan repayment details, and credit card accounts.
Alternative Credit Scoring Models
The following alternative credit scoring models have a different approach, leveraging their own data sources, proprietary algorithms, and technology to disrupt existing industry systems. The idea is to reach new audiences and onboard creditworthy borrowers who are lost due to the current model’s shortcomings.
FICO Score XD
FICO (Fair Isaac Corporation) is best positioned to bring the change. Its FICO is synonymous with credit scoring and is usually the most important element in deciding if a person can qualify for a loan.
FICO’s new alternative model, FICO Score XD, developed in partnership with LexisNexis Risk Solutions and Equifax, considers alternative data sources like internet and phone bills to help users who do not have credit data attain a score.
FICO Score XD 2 was able to score over 26.5 million previously unscorable consumer files
11.8 million were without any credit file and unscorable via any traditional bureau
The new system has increased coverage from 91% of applicants to almost 98% of applicants
Another scoring model has been developed by credit reporting giant TransUnion in order to integrate alternative data and provide a solution to those who do not have any credit score. It concentrates on “trended data” as compared to only considering historical data in silos. So it not only evaluates the current situation of the borrower but also the credit details for last two years for a more comprehensive credit-scoring model. It has been able to score over 60 million borrowers who were previously unscorable.
Cignifi, based in Cambridge, Massachusetts, is an interesting alternative credit scoring startup. Backed by the Omidyar Network, it provides a platform for providing credit and marketing scores for consumers (especially in the developing world) via mobile phone behavior data. Its big data engine allows the mobile network operators and insurance partners to discover eligible customers for credit cards, loans, insurance, savings, and other banking services.
Cignifi’s main focus is on “financial inclusion,” which uses risk scoring technology to serve the unbanked population who do not have credit scores. It leverages mobile and texting patterns, routine of being at workplace or home, and contact with reputable borrowers.
This India-based fintech startup offers alternate data-based credit scores for underwriting first-time borrowers using machine learning and big data analytics. It has raised $7 million in funding and uses over 10,000 digital footprints via in-house designed APIs. It has been able to help lenders attract first-time borrowers as well as reduce the processing time from days to 30 minutes.
India alone has 800 million unscored individuals, thus the market size is huge and lenders desperately need a service which can help them tap such a massive segment of the population.
Advantages of Alternative Credit Scoring Models
Access to a wider customer base: It enables the widening of the prospective borrower base. This is extremely vital for fintech lenders as it is difficult for them to compete with the big banks on pricing. But their ability to utilize new credit models and give borrowers with “thin” credit files a chance will lead to the expansion of the entire market.
Customer experience: Alternative credit scoring also automates the process of credit decisioning and allows for a more hassle-free digitally-enhanced experience. This enhances the utility to millions of borrowers who were otherwise supposed to visit their nearest branches for processing of their loan applications.
Improved underwriting process: All the alternative data adds a layer of analytics to the existing data, as well. This gives deep insight to the underwriters and helps in developing an enhanced credit-scoring model.
These alternative credit-scoring models aim to bring banking to the unbanked. This empowers lenders to reach out to individuals who were rejected for the reason that they had no/thin credit flies. The new models will shake up the industry, and lenders incorporating them into their credit underwriting process will see better traction and stronger customer loyalty, especially from those who were earlier denied credit on a faulty premise.
News Comments Today’s main news: IEG Holdings wants to turn Lending Club into a balance sheet lender. Groundfloor launches nationwide. Crowd2Fund launches 30M GBP fundraise. China may get a second consumer credit bureau. Klarna expands e-commerce footprint. Today’s main analysis: LendingTree releases mortgage offer report for December. Today’s thought-provoking articles: Are corporations posting fake comments on government regulatory websites? History […]
Groundfloor expands nationwide under Reg A. AT: “To my knowledge, this is the biggest and the best opportunity for non-accredited investors in marketplace lending. Larger platforms that have been around much longer, such as Fundrise, Prosper, and Lending Club, have opportunities for non-accredited investors, but Groundfloor was started specifically to give non-accredited investors opportunities to invest in real estate, and their offerings are something the average non-accredited investor can understand. Not to mention, their minimum investment is only $10. In a world where the average person can’t afford a $400 emergency fund, that’s a huge door of opportunity. The big question is, is their business model sustainable?”
On January 5, 2017, IEG Holdings (OTC:IEGH) launched a tender offer for up to 4.99% of LendingClub (NYSE:LC).
– Management believes it can convert LendingClub from a broker of loans into a balance sheet lender
Non-accredited and accredited investors in all 50 states can now participate in real estate crowdfunding investment opportunities with Groundfloor. Groundfloor, the first issuer qualified by the U.S. Securities & Exchange Commission to offer real estate debt investments via Regulation A that are available to non-accredited investors, today announced that it has received qualification as an issuer under Tier 2 of Regulation A. The qualification allows over 150 million additional investors to access real estate investment opportunities that have been previously unavailable to them, tripling Groundfloor’s addressable market.
In 2017, Groundfloor saw tremendous growth of over 380% in origination volume and 786% in revenue, prior to announcing a partnership with its first institutional investor, Direct Access Capital (DAC).2 Groundfloor lends in 27 states, and has self-originated over $50 million in loans for 398 real estate projects earning individual investor portfolios average annualized returns of 11.74 percent to date. Groundfloor has also raised $9.1M in venture capital from leading fintech VCs and angel investors.
LendingTree®, the online loan marketplace, today released its monthly Mortgage Offers Report which analyzes data from actual loan terms offered to borrowers on LendingTree.com by lenders on LendingTree’s network. The purpose of the report is to empower consumers by providing additional information on how their credit profile affects their loan prospects.
December’s best offers for borrowers with the best profiles had an average APR of 3.80% for conforming 30-year fixed purchase loans, up from 3.75% in November. Refinance loan offers were up 1 bps to 3.70%.
For the average borrower, purchase APRs for conforming 30-yr fixed loans offered on LendingTree’s platform were up 12 bps to 4.42%, the highest since July 2016. The loan note rate hit the highest since March 2016 at 4.32% and was up 14 bps from November.
Consumers with the highest credit scores (760+) saw offered APRs of 4.26% in December, vs 4.56% for consumers with scores of 680-719. The APR spread of 30 bps between these score ranges was 3 bps wider than in November and the widest since this data series began in April 2016. The spread represents nearly $15,000 in additional costs for borrowers with lower credit scores over 30-years for the average purchase loan amount of $233,586. The additional costs are due to higher interest rates, larger fees or a combination of the two.
Refinance APRs for conforming 30-yr fixed loans were up 7 bps to 4.31%. The credit score bracket spread widened to 24 from 20 bps, amounting to $12,000 in extra costs over the life of the loan for lower credit score borrowers given an average refinance loan of $241,973.
Average proposed purchase down payments have been rising for 8 months and reached $63,740.
A significant number of fake comments appear among thousands criticizing a proposed federal rule meant to prevent conflicts of interest in retirement advice, according to a Wall Street Journal analysis.
Consider the experience of Robert Schubert, a Devon, Pa., salesperson. A comment posted in his name on the Labor Department website opposed the rule, saying: “I do not need, do not want and object to any federal interference in my retirement planning.”
In an interview, Mr. Schubert said the comment was a fraud. He didn’t post it and doesn’t agree with it. “I am disgusted that people can post comments using my name,” Mr. Schubert said.
Mr. Schubert is among 50 people who responded to a survey last week conducted by research firm Mercury Analytics for The Journal—40%, or 20 of whom said they didn’t post the comment listed under their name, address, phone number and email.
A pattern of cyber deception is appearing across the federal government in the nooks and crannies of the process where White House directives or Congress’ laws are turned into the rules Americans must abide by—or in the Trump era, are repealed.
Hundreds of thousands of comments, purportedly made by Americans, have come in over the electronic transom to at least five different federal agencies calling for an end to Obama-era consumer protections and other regulations that impede profits, a series of investigative reports by the Wall Street Journal found. Except, the people who supposedly sent these comments never did.
The US economy added 148k jobs in December and the unemployment rate held steady at 4.1%. The jobs number was below economists’ estimates of 190k, but average hourly earnings rose 2.5%, a strong increase, and a metric that market participants are watching as a precursor to higher inflation.
In regulatory news, Indiana is planning legislation that would cap the interest rate on personal loans at 36%, down from the current cap of 391% on payday loans. If passed, this legislation would affect the payday lending industry and some experts have expressed concerns that this may crimp credit availability to the neediest individuals. The US government is also considering updating the credit scoring methodology used in evaluating mortgage applications, to use competitors to FICO score like VantageScore, with the hope that the new scores would expand mortgage credit access to borrowers.
Frank, a New York-based student loan startup, announced this week that it has secured $10 million through its Series AFunding Round, which was led by Apollo Global Management, with participation from Reach Capital, and Aleph. This funding round brought its total funding amount to $15.5 million.
Digital superannuation advice startup SuperEd has completed a $5 million capital raise from both external investors and staff members to ramp up its expansion, with the 2012-founded company betting on digital advice being a big deal for fund managers going forward.
Earlybird Advance is a no-fee, no-interest loan from MetaBank that allows users who file through Credit Karma to claim from $500 to $1,000 of their tax refund as soon as 24 hours after the IRS accepts their tax return. This is a step up from the three-to-four week time period it generally takes for taxpayers to receive their funds.
“Digital leaders report an 8.6 percent increase in revenue, an 11.3 percent rise in productivity, and a 6.3 percent improvement in market share. Advanced firms now generate 32 percent of their revenue through digital channels, and expect that amount to rise to 48 percent by 2022,” the study pointed out.
Digital leaders acknowledge what will be the growing importance of AI in the digital transformation of industry from the front office to the back office over the next five years. According to the study, while more than half of the digital leaders are already using AI to increase productivity, some 40 percent are extending AI applications to investment management as well.
Community Reinvestment Fund, USA (CRF) – a mission-driven non-profit lender dedicated to improving communities and transforming lives – announced today that it has partnered with U.S. Bank to deliver a new solution for connecting small business borrowers with responsible lending options from community-based lenders across the country.
There are approximately 28.8 million small businesses in the U.S., accounting for more than 63 percent of the net new jobs created between 1993 and 2013. However, the Federal Reserve Bank’s 2016 Small Business Credit Surveyfound the most common challenge facing small businesses was “credit availability or securing funds for expansion.”
Second, Comptroller Otting may be helpful to Fintech companies in addressing important issues such as the Second Circuit’s decision in Madden v. Midland Funding and the so-called “true lender” issue. For example, the OCC could adopt a rule or issue interpretative guidance: (1) providing that loans funded by a bank in its own name as creditor are fully subject to Section 85 and other provisions of the National Bank Act for their entire term; and (2) emphasizing that banks that make loans are expected to manage and supervise the lending process in accordance with OCC guidance and will be subject to regulatory consequences if and to the extent that loan programs are unsafe or unsound or fail to comply with applicable law. (The rule should apply in the same way to federal savings banks and their governing statute, the Home Owners’ Loan Act.) In other words, it is the origination of the loan by a supervised bank (and the attendant legal consequences if the loans are improperly originated), and not whether the bank retains the predominant economic interest in the loan, that should govern the regulatory treatment of the loan under federal law.
To ease your anxiety, you might consider adding a small dose of alternative investments–things that zig when the stock market zags–to your portfolio, even if it means giving up some potential returns.
Wells Fargo Investment Institute, the research and strategy arm of the giant bank, recommends a 23% allotment to various alternative investments for moderate-risk investors, for example, up from 16% two years ago. At Altfest Personal Wealth Management, in New York, 15% of client assets are invested in alternatives, up from 10% last year.
Market-neutral funds. If your goal is to invest in an asset that doesn’t move in sync with the S&P 500, consider a market-neutral fund, such as a merger-arbitrage fund.
Options-based funds allow you to maintain your stock exposure–or even put new money in the market–with some degree of safety.
Long-short stock funds. These funds bet on some stocks and against others with the goal of delivering respectable returns with low volatility. The funds have been 15% to 25% less volatile than an S&P 500-stock index fund over the past decade.
What do an undocumented immigrant in the South Bronx, a high-net-worth entrepreneur, and a twenty-something graduate student have in common? All three are victims of our dysfunctional mainstream bank and credit system. Today nearly half of all Americans live from paycheck to paycheck, and income volatility has doubled over the past thirty years. Banks, with their high monthly fees and overdraft charges, are gouging their low- and middle-income customers, while serving only the wealthiest Americans.
I recently left RealtyShares, the online marketplace for real estate investing, as CEO after founding the company in my living room back in 2013.
When Zach realized I was leaving the CEO role at RealtyShares, he reached out and asked if I wanted to get involved with MetaProp, the first real estate technology incubator based out of NYC.
This opportunity would give me a chance to pursue my passion in real estate technology through a different lens while mentoring startup founders and CEOs and helping them as they embark on the same journey I embarked on four years ago.
AlphaFlow, the first automated alternative investment platform for real estate, announced today that Chris Woida has joined the company as co-Chief Investment Officer. Woida will serve as co-CIO alongside the firm’s CEO Ray Sturm, who will act as both CEO and co-CIO.
Woida brings over 10 years of experience in the financial services industry, previously helping build BlackRock’s smart beta and factor-based platforms and serving as the lead investment strategist for its flagship style-factor hedge fund during his seven years with the company. Most recently, he served as Managing Director, Head of Index Solutions at Axioma, a provider of enterprise market risk and portfolio analytics solutions. In this role, Woida helped the index business expand into derivatives, fixed income and alternative data sources, including AI and ESG.
MPOWER Financing, a public benefit corporation focused on removing financial barriers to higher education in the U.S., has appointed Lutz Braum as its vice president of marketing and business development.
LendingTree®, the online loan marketplace, and Access Intelligence, a business information and marketing company, today announced a new initiative to showcase the top innovations in financial technology (fintech) lead generation at LeadsCon Las Vegas this March.
Startups and established businesses from around the world can apply today for a chance to receive exposure, bragging rights and $25,000 in cash.
Crowd2Fund has embarked on an ambitious series of fundraises that it hopes will see £30m raised within the next 24 months.
The peer-to-peer lender, one of the first to launch an Innovative Finance ISA, has already raised £1.5m from 113 of its own investors (all of whom are either sophisticated or high net worth individuals). More shares were made available after demand exceeded the initial target of £1m. These investors have bought shares in the company at a valuation of £33m. The capital is being raised through Crowd2Fund’s platform.
Rapid growth in Britain’s consumer credit has been driven by borrowing by people with good credit scores, not subprime lending, according to research from regulators on Monday.
Unsecured consumer lending grew at near double-digit rates in 2016 and 2017, and concern that lenders had overestimated their borrowers’ creditworthiness led the Bank of England to tell them in September to hold 10 billion pounds ($13.54 billion) of extra capital.
However, research jointly published by Britain’s Financial Conduct Authority and a BoE blog showed that two-thirds of outstanding lending as of November 2016 was held by borrowers with credit scores in the top 30 percent.
Wherever you are on your life cycle, knowing the financing options available to you is a crucial part of growing and running your business.
Equity finance can be used at various stages of your business life cycle and giving up equity can be a big decision.
Private equity focuses on more medium to long term investment and will usually involve the development of the product and a new management structure to improve the performance of the business.
Crowdfunding aims to connect businesses with a large number of potential investors via a shared online platform.
Debt finance is usually used as a means of long term investment or funding working capital.
Peer to Peer (P2P) lending
P2P lending brings individual borrowers and lenders together via an online platform by by-passing traditional banks with the aim of achieving better rates for all.
Assets can be purchased via leasing or hire purchase agreements which can assist the cash flow of the business. The asset is not fully paid for upfront but over a fixed period of time and the lease or hire purchase agreement is secured on the asset being financed.
A debt factor will take on the sales ledger of the business and chase money owed by your customers. The factor will advance most of the value of the outstanding sales invoices to the business with the balance being paid once the customers have fully repaid their debt.
Last week, on January 4, the People’s Bank of China (PBoC) accepted a license application for consumer credit bureau led by the National Internet Finance Association of China. As of now, the Credit Reference Center of the central bank is the only consumer credit bureau in China.
A boom in asset-backed securities issued by micro-lenders aiming to expand in China’s fast-growing online credit market looks set to slow this year amid growing regulatory scrutiny.
Rules announced on Dec. 1 limited the amount of lending backed by the products the companies can make. They were also required to consolidate them on their balance sheets.
Ant Financial is the largest issuer of consumer loan securities, accounting for 60 percent of all issues in 2017, according to Reuters calculations based on data from China Securitisation Analytics.
Its two Chongqing-based micro-loan companies had total net capital of 10.6 billion yuan, but issued 265.1 billion yuan in loans by the end of June, according to CIB Research, a unit of Industrial Bank Co (601166.SS). Outstanding loan securities issued by the two units have exceeded 250 billion yuan, it said.
ACI Worldwide (NASDAQ: ACIW), a global provider of real-time electronic payment and banking solutions, today announced an extended partnership with Klarna, leveraging ACI’s UP eCommerce Payments solution. This will enable online businesses in 10 major markets, including the U.S. and U.K., to easily integrate Klarna’s payment products, and offer shoppers a fast and frictionless checkout process that can improve conversion rates immediately.
The peer to peer lending platform has seen a decent spike after it featured heavily across exchange Coinspot’s Facebook page as they look too soon be listed on the exchange. That exposure has also highlighted the achievements the Estonian company has made recently, including launching its fiat based loans at the end of 2017.
Strict terms and conditions usually govern the circumstances in which prepay cards can be issued by unlicensed (non-bank) institutions due to their popularity with the unbanked or low-credit community as well as their propensity to be taken advantage of for money laundering reasons. These T&Cs tend to be jurisdiction dependent, and can in some cases restrict the types of funds that can be loaded onto cards by source (for example the source of funds might be restricted to welfare payments and/or employer compensation for services rendered).
Take as an example the following condition attached to a card brought to market by an outfit called TenX:
LOADING FUNDS TO YOUR ACCOUNT
Five.1 Your Card is a payout card tied to an account directly or indirectly established by an employer or other such corporate payor (each, a “Payor”) on behalf of a consumer to which electronic funds transfers of the consumer’s wages or other compensation are made on a recurring basis, whether the account is operated or managed by the employer, a third party payout processor, or a depository institution. Only funds from a Payor may be loaded to your Account In case of errors or questions about the funds loaded to your Account, contact your payout provider.
Globally, venture investors put $7.6 billion in cybersecurity companies last year, which was up from $3.8 billion in 2016, according to the research firm. The number of cybersecurity-related investments jumped to 548 in 2017 from 467 deals the year before.
Global spending on cybersecurity was estimated to reach $83.5 billion in 2017, and that number could hit $119.9 billion in 2021, according to an IDC report from October.
Banks will increasingly start looking at startups in the FinTech, RegTech and InsurTech space as their extended innovation arms with a view to collaborate with them.
The BharatQR code, a unique interoperable payment acceptance solution developed by the NPCI (National Payments Corporation of India), Mastercard and Visa will enable point of sale (POS) transactions to be made more seamlessly. Along with banks, payment wallets like Paytm and MobiKwik will continue to make huge investments to leverage this new standard.
Startups in this space are likely to well as adoption by banks and other financial institutions rises in AI, ML, NLP (Natural Language Processing) and NLG (Natural Language Generation).
In credit-scarce Myanmar, obstacles abound for budding entrepreneurs with bright ideas, big potential and dry pockets. With banks reluctant to lend to individuals without appropriate collateral and proven track records, many small businesses ultimately fail.
Ma Khin Yadana is among those with a success story behind her garment business, which she started from scratch around five years ago.
To get back on her feet, Ma Khin Yadana sought help from a small business group on Facebook, where she met with other garment shop owners across Myanmar who were willing to invest in start-up businesses like hers by extending credit via a peer-to-peer (P2P) lending system. In return, the funds would be paid back with interest within 15 days.
However, the constant pressure of having to repay loans has begun to take a toll on the young entrepreneur. “Most of the loans from investors are on six-month terms. So far, I have 70 investors to whom I must repay K100 million in total.
When the loans are due, I have to repay in full plus interest. The main problem is the 15pc interest rate, which is too high,” she said.
In mid-2017, with higher levels of debt coming due, Ma Khin Yadana negotiated with investors for lower interest rates of 10pc.
Today, CIBC (TSX: CM) (NYSE: CM) introduced CIBC Innovation Banking, a full-service business that delivers strategic advice and funding to North American technology and innovation clients at each stage of their business cycle, from start up to IPO and beyond.
Lending-Times recently conducted a survey of our readers to find out more about the types of lending services they offer and how they relate to their customers. The following are the results of the survey. What type of lending services do you provide? (select all that apply) The majority of readers (55.88%) are in the […]
Lending-Times recently conducted a survey of our readers to find out more about the types of lending services they offer and how they relate to their customers. The following are the results of the survey.
What type of lending services do you provide? (select all that apply)
The majority of readers (55.88%) are in the consumer loan business followed by 36.76% involved in business lending. 17.65% are in mortgage lending while 16.18% are in student lending 10.29% are involved in auto lending. Another 25% identify as alternative lenders, a broad category of lending that includes many types of non-bank loans. Because readers could choose more than one category for this question, the survey results do not add up to 100%.
What is your role within the organization?
The largest percentage of survey takers (25%) fall into the digital sales, marketing, and acquisition category. 11.76% fall into risk, fraud, and compliance occupations, and another 10.29% consider themselves a part of product and technology. The majority, 52.94%, chose “other.”
How do you verify the identity of your borrowers?
When it comes to identifying borrower identities, 37.31% said they do so through data bureau checks. Digital identity verification checks are used by 32.84% of those who took our survey, and 23.88% said they verify borrower identities with a manual review of identity documents. Only 5.97% said “other.”
How do you collect supporting documents for underwriting (for example, utility bills for proof of address, W2s for proof of income, etc.)?
Regarding underwriting practices, 69.74% of survey takers said they collect documents through electronic capture and upload, 25% by email, and 5.26% have borrowers deliver to a physical location. No respondents said they receive documents by fax.
Do you think your current process for onboarding new applicants could be improved?
A simple yes or no response on this question revealed that 93.24% of survey takers believe their new applicant onboarding processes can be improved while only 6.58% responded in the negative.
What stage of the digital transformation journey is your organization at today?
Almost half, 42.11%, of survey respondents said they are a fully digital organization, and the same percentage said they are on track to becoming a fully digital lender. Those just starting out represent 19.74% of our readership who said they are working on a full-digital strategy and evaluating vendors. None of the respondents said they have no plans to become a fully digital lender.
What do you think are the main barriers to oﬀering fully digital lending services? (select all that apply)?
The majority of survey takers (53.42%) said the biggest barrier to offering fully digital lending service is mitigating risk while avoid loan application abondonment. Another 52.05% said meeting compliance without compromising the user experience is the main barrier. Almost one-third of survey takeres (27.40%) said they lack the skills, resources, and budget to offer fully digital lending services. Respondents who said they do not see the value of shifting their loan origination practices to digital channels registered at 9.59%, and those unsure of where to begin came in at 5.48%.
Rank on a scale from 1-5, the value of each beneﬁt in the digital lending process (1 being very valuable, 5 being not valuable).
Our readers seem to value regulatory compliance more than any other digital lending benefit. Risk mitigation followed closely behind followed by improvements in operational efficiency. Cycle time and user experience pulled up the rear.
Do you feel your lending user experience is a competitive diﬀerentiator?
84% of survey takers said the user experience on their lending platforms are a key competitive differentiator while 16% said it wasn’t.
If you already oﬀer digital loans, which of the following options do you provide?
Among survey takers, the digital lending options provided the most include desktop/laptop (52.11%), mobile-optimized website (50.70%), and native app (15.49%). Over one-third (39.44%) said they offer all three options.
News Comments Today’s main news: Affirm wants to offer financial advice. RateSetter to launch IFISA. SoFi announces Entrepreneur Program 2.0. Prosper tightens guidance on consumer loan ABS. Qudian priced IPO above range. IBM partners with 8 banks on blockchain trade platform. GuiaBolso raises $39M in Brazil. Today’s main analysis: U.S. banks get aggressive on growth. Party on, Chinese consumers. Today’s thought-provoking articles: […]
Affirm wants to offer financial advice. AT: “Alt lenders who reach critical mass will have to find profitable ways to grow and expand. Offering new services is the no-brainer option. Successful alternative lenders will expand into new markets at the right opportunity, offer new services to the right audience, and improve business efficiencies to scale more quickly. Affirm is one of the companies poised to make that happen, and offering financial advice to its customer base while expanding services to newer customers in newer markets seems like a winning strategy. The question here is, will that financial advice product take the form of a robo, human, or hybrid?”
U.S. banks get aggressive on growth. AT: “If they’re to remain competitive and relevant, banks will have to get creative about attracting new customers, and that means getting creative about its products. Goldman Sachs is leading the pack.”
Online lending platform SoFi recently announced the launch of its Entrepreneur Program 2.0. The company reported that original program was launched four years ago and since then has helped four classes of 70 companies founded by the lender’s members to get off the ground with its coaching and resources.
SoFi then revealed some improvements, which would benefit the future classes.
More Eligibility: The program is now open to all members working as a founder or co-founder either full or part-time on an innovative and scalable tech-enabled business.
SoFi Offers Investment: The lender will give equity capital to each of the members of the Class. For this coming Class, this amount will be $25,000 per company.
Community engagement: SoFi will engage our 380,000-plus members in the accelerator process and share the incredible companies their fellow members are working on.
“I’m happy to say our focus has shifted beyond the implementation of regulations . . . to growth,” said Mr Chavez.
No other big US bank put it that bluntly, but the sentiment seemed to be shared. With the notable exception of Wells Fargo, still trying to shake off the damage of its fake-account scandal, executives were making encouraging noises about new businesses and top-line expansion as they presented third-quarter results.
At Citigroup, for example, which shed about $500bn of assets in the years after the crisis, CFO John Gerspach talked about growth in credit cards in Mexico and wealth management in Asia. At Bank of America, which added about $90bn of assets over the year, CFO Paul D’Onofrio said he welcomed any “refinement” to rules that “allows us more access and control over our capital [and] liquidity in support of responsible growth”.
At Morgan Stanley, James Gorman said the bank “won’t be shy” about doing deals such as last month’s acquisition of Mesa West Capital, a commercial real estate platform — prompting one analyst to remark on the chief executive’s “more aggressive” tone.
“We’re not looking for any grand splash here, but we’re open for business opportunistically,” said Mr Gorman.
Now the mood has changed in Washington. Few laws have been ripped up, as yet, despite Donald Trump’s early pledge to “do a number” on Dodd-Frank. But new figures in agencies such as Randy Quarles, appointed this month to the most powerful bank regulatory job in the country, should make a real difference. Trade groups say they are expecting him to take a looser grip on the banks than Daniel Tarullo, the previous supervisor-in-chief at the Federal Reserve.
Cybercrime has evolved to exploit gaps in enterprise data security and disrupted identity theft in the process. It has spawned a parallel black market on the Dark Web, where criminals transact in bitcoin to anonymously trade stolen data, minting hundreds of billions in annual and often untraceable proceeds for sellers.
Javelin Strategy & Research’s 2017 Identity Fraud Study said ID theft hit a record high in 2016, victimizing 15.4 million people, or roughly two-million more victims than the previous year. ID theft is generally a precursor to credit card fraud, which attributed to worldwide losses of $21.84 billion in 2016.
Card issuers incurred 72%, of those losses last year, with card fraud expected to syphon a grand total of $88.87 billion out of the global financial system over the next four years.
Understanding the vast supply-and-demand mechanism of the Dark Web economy is integral to KYC strategy for banks. The Center for Strategic and International Studies pegs the worldwide cost of cybercrime at $445 billion a year. According to the 2016 Cost of Cybercrime Study, data breaches, cyber-fraud and related disruptions impact U.S. organizations the hardest, with the average cyberattack generating $17.36 million in costs. Of the 4149 data breaches and 4.2 billion records exposed in 2016, as reported by cybersecurity firm RiskBased Security, the U.S. comprised 47.5% and 68.2% of those numbers, respectively.
Feedzai is announcing a $50 million Series C this morning led by an unnamed VC with additional capital from Sapphire Ventures. The six year old startup builds machine learning tools to help banks and merchants spot payment fraud.
With 60 clients including major financial institutions like Capital One and Citi, Feedzai remains optimistic that allowing savvy customers to build on top of its service is the key to longevity.
A survey of businesses conducted this summer and released Wednesday found that 30 percent of companies owned by women were able to get bank loans during the previous three months, compared to half of all the owners surveyed.
Only 21 percent of the women surveyed said they expected it will be easy to raise debt financing — essentially loans — in the next six months, compared to 44 percent of all companies. Fewer of those owners said they were likely to pursue a bank loan, at 67 percent compared to 75 percent of all owners.
The number of U.S. businesses owned by women grew nearly 27 percent from 2007 to 2012, rising to nearly 10 million from 7.8 million, according to the most recent Census Bureau figures. The total number of businesses grew less than 2 percent.
Bank of America found this year that 11 percent of owners who are women applied for loans the past two years versus 13 percent of owners who are men. Some banks have realized they need to be more aggressive in lending to businesses owned by women; Wells Fargo set a goal of $55 billion in loans by 2020, but surpassed that number in 2013, spokesman Jim Seitz says.
Financial technology platform iCapital Network has partnered with the Chartered Alternative Investment Analyst (CAIA) Association on a sweeping education initiative aimed at increasing knowledge about alternative investing.
As part of the new initiative, iCapital will offer CAIA’s Fundamentals of Alternative Investments program to its member network of more than 1,900 registered investment advisors, broker-dealers, private banks and family offices.
Harvard Partners CEO Bill Verhelle announced his firm is seeking to invest in, or purchase, small innovative U.S.-based commercial finance firms. Interest is not limited to companies already in the equipment leasing and finance industry, though he will be at that industry’s annual convention next week.
Harvard Partners is specifically interested in companies with demonstrated experience and capable management teams employing new business models. Harvard Partners’ first equity investment this year, along with another private equity investor, involved a West Coast business lending and equipment finance firm with advanced financial technology (fintech) capabilities.
Another sovereign wealth fund is opening shop in Silicon Valley. This time it’s Abu Dhabi-based Mubadala Investment Co., which also is launching a $400 million direct VC fund (in partnership with SoftBank) and a $200 million VC fund-of-funds.
“It’s more than just setting up an office — it’s a real committed and genuine intent to be an active member of this community,” Mubadala’s Ibrahim Ajami tells Axios’ Kia Kokalitcheva, who scooped the news.
He adds that the direct fund shouldn’t compete with SoftBank Vision Fund, into which Mubadala has pumped $15 billion, given that it will be looking at earlier-stage deals. Get the full story.
Real estate crowdfunding is one of the fastest growing trends in the investment community. They provide obvious value to investors who would otherwise be priced out of commercial and private equity deals. RealtyShares is one of these crowdfunding platforms, but they have a unique niche.
They work with both institutional investors and “the crowd” of smaller investors to find a wide range of projects.
To invest in RealtyShares, you need to be an accredited investor.
What Types Of Investments Does RealtyShares Offer?
First position liens
Mezzanine Debt (aka Bridge Loan)
JV (Joint Venture) Equity
Your minimum investment is $5000, and you’ll pay a 1% investment fee on equity investments, and up to a 2% interest rate spread on debt.
American Association of Private Lenders (AAPL) has partnered with Private Money Lending Guide (PMLG). The partnership brings together an association that provides education, ethics and networking opportunities for private money lenders and a tool for deal-flow that enables borrowers and lenders to find the appropriate counterpart for their deals.
Ken Rees, Chief Executive Officer at Elevate, a leading tech-enabled provider of innovative and responsible online credit solutions for non-prime consumers, will speak on a panel at the Money 20/20 conference in Las Vegas on October 24, 2017. The panel will focus on the future of alternative lending, including fintech’s potential to partner with banks to create better outcomes for both parties. The panel will also tackle the challenges that alternative lenders face now, and how to use innovation and creative solutions to address them.
JUST 1.4 per cent of the adult population are using peer-to-peer lending or crowdfunding but the product has among the proportionally lowest levels of financially vulnerable customers, figures from the Financial Conduct Authority (FCA) suggest.
The data is revealed in the City watchdog’s financial lives survey, a poll of almost 13,000 consumers about the products they hold and their experiences of them.
The research shows just 180 out of 12,865 adults, or 1.4 per cent, surveyed said they have used a crowdfunding or P2P product, which the FCA says works out as 700,000 adults when weighted against the UK population.
Of those who are using P2P, 74 per cent of respondents identified themselves as male and 25 per cent said they were female.
LendingCrowd, the peer-to-peer (P2P) lender, has launched a £50 “refer a friend” promotion as it continues to experience strong demand from borrowers across the UK.
Following a record quarter for new loans and the rising popularity of its tax-free* Innovative ISA (IFISA) accounts, investors on the P2P lending platform will be given a £50 bonus when each friend they refer invests at least £2,000. Each friend will also receive a £50 referral reward.
Online micro-credit provider Qudian Inc’s (QD.N) initial public offering could be priced above the expected range of $19-$22 per American depositary share, sources familiar with the matter told Reuters.
The offering could give the company, backed by Alibaba’s (BABA.N) banking unit Ant Financial, a market capitalization of more than $7 billion and raise over $825 million.
Qudian Inc., operator of a loan platform for consumers and small businesses, jumped 22 percent on its New York trading debut Wednesday. The Beijing-based company raised $900 million in an initial public offering on the eve of China’s 19th party congress, pricing its shares above the high end of its indicative range. It’s the largest U.S. listing by a Chinese company since the $1.4 billion sale by logistics company ZTO Express (Cayman) Inc. in September 2016.
Qudian’s experience stands in sharp contrast to that of China Rapid Finance Ltd., a peer-to-peer consumer lender. In April, China Rapid Finance managed to raise only $60 million, having priced at the bottom end of its range. Since then, though, the shares have soared more than 90 percent, with most of the gain coming this month. Similarly, the October rally has brought the advance for Beijing-based consumer finance company Yirendai Ltd. to 150 percent this year.
Looking at Qudian’s financials, one can’t help the bullish feeling that China’s consumer credit market is only in its early stages. Qudian’s rate of loan delinquencies, defined as those over 30 days past due, is only 0.5 percent or less this year, according to the company, which relies on Alibaba Group Holding Ltd.’s Ant Financial affiliate for new borrowers and credit rating services.
Betting on China’s next generation of borrowers just got easier. Qudian, an online microlender backed by e-commerce giant Alibaba’s financial unit, priced its U.S. listing above its expected range on Tuesday, says Reuters. It offers fast growth, low default rates and, unlike many tech startups, is already profitable. At $24 per share, the final price represents a 2018 PE of 13.8, compared to 13.0 for smaller U.S.-listed online lender Yirendai.
China’s household debt relative to income is still low, and consumer credit is underpenetrated at 7 percent of gross domestic product, versus 20 percent in the United States, says Goldman Sachs. The investment bank expects outstanding consumer credit excluding mortgages to more than double to $1.9 trillion by 2020.
Qudian focuses on the younger segment of this market, providing small, short-term loans for ordinary purchases.
A key theme in the new book is financial inclusion and, to those ends, I made a visit to Hangzhou, China, to meet the executive team of Ant Financial.
As Americans struggle with the pains of Chip & PIN and Europeans embrace contactless payments, China has leap-frogged us all. In 2016, Chinese consumers spent $5.5 trillion through their mobile apps. That’s more than any other economy and many predict that China will be first major economy to be completely cashless. The chosen mobile payment system for most Chinese citizens is Alipay, and the company has recently started to expand its footprint globally.
Many of you may have heard of Alipay, but it is not the Chinese version of PayPal, as many think. In fact, it bears no relationship or resemblance to anything we see in Europe or America. It is distinctly Chinese and, having been born out of a need to trade, is now moving towards global dominance.
How far things have changed, in that today’s Alipay monitors every transaction from its 450 million users, in real-time with artificial intelligence monitors constantly searching for potentially fraudulent transactions. That is a far cry from where they started, but then the company has refreshed its systems architecture four times in the last twelve years and has just embarked in another refresh. They moved from basic escrow services to real-time payments to cloud to microservices, and are now working on their new machine learning and super intelligent structure. A structure that can process 250,000 transactions per second today, and is architecting systems that will scale to over 100 billion transactions per day. To put that in perspective, Visa and MasterCard handle just over 60 billion transactions per year combined, and average near 2,000 transactions per second.
The number of P2P companies has been reduced through attrition and government regulation, and a few strong players are emerging:
Caixinreports (paywall) that P2P platform PPDAI Group has announced plans “to raise up to $350 million through a New York initial public offering (IPO).
In September, online-only insurer ZhongAn Online P&C Insurance raised $1.5 billion in an IPO on the Hong Kong Stock Exchange.
The South China Morning Postreports that shares of Qudian, a leading online consumer credit provider, “surged nearly 46 percent to US$35 on its debut trading on the New York Stock Exchange on Wednesday morning.” Aside from fierce competition in the sector, the SCMP says that “Qudian has one other worry — potential competition with its principal shareholder Ant Financial,” which is, like the SCMP itself, an Alibaba affiliate.
Two major players announced cross-border payment networks built on blockchain technologies Monday, and more financial services will follow soon, despite opinions about Bitcoin.
The distributed ledger technology that underpins cryptocurrency like Bitcoin is rapidly going mainstream. Blockchain is building a tremendous amount of buzz as technology and financial industry heavyweights and startups race to apply the technology in innovative new applications for the banking sector. Their efforts are starting to bear fruit in the area of cross-border payments, as three separate announcements from IBM, J.P. Morgan, and Bank of Canada highlighted this week.
The ultimate goal is to provide a secure, speedy and transparent financial platform between global markets that may have found it difficult to do business with one another due to the bureaucratic pitfalls of legacy international payment networks.
The developments this week underline that banking executives are increasingly seeing the upside of combining distributed ledgers with solid cryptographic applications for new means of facilitating payments, trades, contracts, and transactions of all stripes.
Mint Money spoke to Rajat Gandhi, founder and chief executive officer of Faircent, a P2P marketplace which has been in operations since 2014, on his vision for the nascent industry in India.
Now that the RBI has given NBFC status to P2P platforms and has also come out with guidelines for the sector, what is the way ahead?
Most of the guidelines also are in line with the industry expectations, just that there are a few grey areas where we would need some more clarifications. The way I see it, the RBI document is a framework, rather than hard guidelines.
In the short term, we all have to file our applications and get certifications in place.
The P2P lending process was legitimate; the RBI framework has just validated it further. An important development is that the framework has created a redressal system— both for the borrower and the lender. While a lot of obligations will be on the platforms, there is also a lot of clarity now on our roles and responsibilities.
How do the RBI guidelines help a consumer, borrower or lender?
The guidelines basically tell the lender particularly what they are getting into, including the fact that the principal is not protected. We as companies should also keep telling them. Because the moment an investor hears interest rate, the immediate thought is assured returns.
Secondly, the guidelines have unlocked the supply side. Borrowing till now was restricted to banks and NBFCs, which have stringent guidelines. Whereas out here, this is an exchange model and the P2P platforms cannot lend from their own balance sheet, so the platform’s returns become interest rate agnostic. Their role is only to rate and price the borrowers, and as a platform, we do not directly benefit from this rating and pricing.
If a P2P platform is interest rate agnostic, what is your business model and how does your business make money?
Basically, we charge 1% from the lender and 2-4% from the borrower, of the loan disbursed.
The guidelines also talk about P2P platforms giving services to lenders for recovery of loans. How does that work?
We have a panel of lawyers who will take up the matter on behalf of the lenders. This is charged as this is a separate service.
What is the size of P2P lending industry in India at present?
The size right now will be roughly around (RS) 50-60 crores on an annualised basis.
After a successful growth stint in the past six months, LenDenClub, a P2P lending platform is looking to meet the capital requirement set by the Reserve Bank of India (RBI) regulations, banking on the newly secured capital which is being used to enhance the product platform and improve tech automation.
Earlier this month, the firm closed a USD 500,000 pre-series A round from a fund based out of Mumbai.
Private sector lender Kotak Mahindra Bank today said its credit and debit card holders will be able to tap and pay using smartphones at merchant establishments.
The city-based lender has tied up with Samsung, under which its cardholders will be able to tap and pay using smartphones of the Korean electronics major having the Samsung Pay acceptance machines, a bank statement said.
Financial transaction company PayPal has long been a supporter of innovation in India, having set up an incubator programme there to support local start-ups. And now, the company is evolving its partnerships with the start-ups that join the incubator, taking equity in participating firms.
The catalyst for ecommerce and other internet businesses to flourish in China, India, and Southeast Asia is digital payments. This in turn has a multiplier effect on economic growth.
That’s why today’s announcement of US$1.5 million series A funding for Pakistani fintech startup Finja is notable. More so, because Swedish investment company Vostok led the round – the Pakistan startup ecosystem rarely hits headlines for attracting international investment. Dubai-headquartered Gray Mackenzie Engineering Services also participated in the round.
Finja is giving a push to digital payments in Pakistan with its SimSim wallet.
Finja claims SimSim has been doubling its mobile wallets every month to notch up 80,000 accounts since it went live a few months ago. It has clocked transactions worth a total of US$14 million so far.
Abu Dhabi’s international financial center has entered a collaboration with payments giant Mastercard to develop and accelerate FinTech solutions in the region.
The Abu Dhabi Global Market (ADGM), an international financial center established by a UAE Federal Decree to develop and strengthen financial services in Dubai as a global center for business and finance, is partnering Mastercard to develop FinTech activities in UAE’s capital and the wider MENA (The Middle East North Africa) region.
The new round was led by Vostok Emerging Finance, a publicly traded Swedish fund with its roots in big Russian private equity. Additional investors include Ribbit Capital, the International Finance Corp. and QED Investors, while impact investment firms Endeavor Catalyst and the Omidyar Network also participated.
For subprime lenders, three macroeconomic trends are affecting credit considerations on an applicant-by-applicant basis. Lenders caught flatfooted in response to these trends risk diminishing their ROI. Despite impressive job and market growth, 56 percent of consumers had subprime credit scores in 2015, according to the Corporation for Enterprise Development (CFED). Cash is no longer king. The average […]
For subprime lenders, three macroeconomic trends are affecting credit considerations on an applicant-by-applicant basis. Lenders caught flatfooted in response to these trends risk diminishing their ROI.
Cash is no longer king. The average consumer uses their debit card at least 21 times per month, a 32 percent increase throughout the past decade, according to a 2015 debit issuer study commissioned by PULSE.
More lenders are beginning to understand the unreliability of the traditional credit score. Each year, 68 to 82 percent of borrowers are new to the subprime market, according to non-traditional credit reporting bureau Clarity Services. An even higher percentage of borrowers will be new to any given vendor. Almost 10 percent of these are thin- or no-file millennials with very different financial backgrounds than previous generations.
Here’s the good news: With access to targeted data, lenders can find reliable opportunities for growth while minimizing potential risks.
Subprime Credit Consumers: the New Majority
Subprime lenders are used to lower credit scores. Since new circumstances have put more consumers in the recent subprime majority, however, it’s worth exploring the circumstances of this larger share.
The financial crisis of 2008/09 occurred during the same time that millions of millennials came of age. In 2015, CreditCards.com found that a third of those aged 18 to 29 did not have credit cards. In 2009, the CARD Act limited the ability of companies to market credit cards on college campuses, cutting card issuance almost in half. As a result, the credit histories of millions of young adults are even more abbreviated than usual, contributing to the new subprime majority.
Additionally, a 2015 Consumer Financial Protection Bureau (CFPB) report explores the 26 million Americans who are “credit invisible,” and the 19 million considered “unscored” by the traditional credit bureaus. While one in 10 Americans don’t have any credit history, an additional 8 percent have insufficient histories, leaving them under-serviced in the credit industry.
These are the economic currents that have more subprime lenders seeking non-traditional sources for data.
Once upon a time, cash was how we paid for most things. Times have changed.
Today, cash accounts for about 14 percent of transactions, according to The Federal Reserve System Cash Product Office. The average American spends roughly $100 a day, according to Gallop, but walks around with only $20 cash, according to Bankrate.com.
A majority of younger adults in the developed world would have no problem with a completely cashless society, says data from ING Group/eZonomics. Given the difficulty of accurately determining a credit score for so many in today’s economy, now is a great time to consider additional measures for understanding an applicant’s financial stability.
Why More Data Is Needed for Scores
Before the Great Recession, lenders relied almost exclusively on traditional credit scores. The Big Three credit reporting agencies employ traditional models composed of criteria like bank loans, car loans, credit card bills, student loans, mortgages and various credit data. Unfortunately, for many millions of those in need of credit services, the above criteria simply won’t work.
But with the subprime majority of today, a number of creditors are looking at other factors.
Ability to pay: Regardless of income level or percentage of residual income, research shows that as long as an applicant for a subprime loan is earning money and has some residual income, they’re probably a safe bet. Of course, that’s assuming there aren’t any red flags for intent not to pay, such as an inability to prove bank account ownership.
Alternative data: Non-traditional credit data and alternative data are not the same. Non-traditional credit data is targeted squarely on credit behavior, whereas the latter often uses more peripheral sources. That can include data from social media to verify a job or location, histories from utility bills and Census data.
Connecting the Dots with Targeted Data
What is meant by “targeted data?” As the largest subprime credit bureau, Clarity Services leverages one of the largest targets available – debit cards. Every five seconds, one new debit card is issued in the United States (PULSE).
In recent years, debit cards accounted for the leading share of payment types. Their usage grew to 69.5 billion in 2015 with a value of $2.56 trillion, up 13 billion or $0.46 trillion since 2012, according to a recent Federal Reserve study. Non-prepaid debit card payments, the type typically connected to checking accounts, grew to 12.4 billion with a value of $0.42 trillion from 2012 to 2015. This is after an increase of nearly 39 billion debit card payments from 2000 to 2012.
Half the time, Americans pay for groceries with debit cards, which are also used significantly at department stores, restaurants and other retailers, according to a TSYS 2014 consumer payments study.
What Debit Cards Say about Consumers
Why do so many prefer debit cards? The TSYS study shows that 66 percent of users like the ability to have purchases deducted directly from their checking account.
For subprime lenders looking to make better decisions in our cashless society, what could debit information reveal about an applicant’s financial circumstances? At a glance, debit and bank account info could yield immediate details to help confirm a high or low credit risk.
Confirmation of primary bank account ownership status Total number of debit cards Number of social security numbers associated with a debit card Number of social security numbers associated with a bank account
Lenders may be able to see whether an applicant’s details are false, incorrect or somehow inconsistent by using the granular details offered by reason codes, which can answer the following yes-or-no questions:
Is the account in good standing?
Is the account associated with a high-risk bank?
Is the CVV a match?
Is the ZIP code incorrect?
Did retail transactions take place in the last 24 hours?
An Old Problem in a New Space
The details above not only yield insight to help manage risk of default, they also speak to another growing problem for lenders in spaces including rent-to-own, online and storefront installment – fraud.
As creative as fraudsters have been for things like payday loans, they are now applying many of the same tactics in the unsuspecting rent-to-own market. Lying on loan applications, account hacking and data leaked from the dark web are just some ways fraudsters are infiltrating the market.
The combined at-a-glance information with the more granular reason codes allow lenders to easily cross-reference data and glean a reliable impression of an applicant.
Adjusting to the New Normal
The “new normal” is an oft-cited term since the last economic crash. As subprime consumers have acclimated to today’s economy, lenders have benefited by adjusting to the market’s needs.
But have lenders fully capitalized on the new aspects today’s normal? For many, the answer is no. It’s worth analyzing the lifecycle of the consumer’s journey to subprime underwriting, and how lenders may simplify the process for the convenience of all parties involved.
Tim Ranney is president and CEO of Clarity Services, Inc., a real-time credit bureau providing credit-related data on subprime consumers. Prior to founding Clarity in 2008, Ranney spent 20 years as a leader in internet security and risk management, serving as COO of an industry leader and senior executive for both Network Solutions and VeriSign.
Money360, a technology-enabled direct lender specializing in commercial real estate (CRE) loans, today announced it closed more than $100 million in loans in the third quarter of 2017. This brings the company’s total loan closings to over $450 million, with a target of $600 million in transactions by year-end.
Notable loans closed in the third quarter include:
A $15 million bridge loan for a six-story, 310-room hotel property in Bloomingdale, Illinois.
A $12.5 million bridge loan for a hospitality property in Burr Ridge, Illinois.
A $9.9 million bridge loan for a three-story, multi-tenant office property in Fresno, California.
A $7.6 million bridge loan for a multi-family property in Bemidji, Minnesota.
A $6.9 million bridge loan for an office property in Denver, Colorado.
A $4.4 million permanent loan for a retail property in Mount Olive, New Jersey.
A $1.2 million bridge loan for a two-story apartment building in Miami, Florida.
Amazon is not alone. Others, such as PayPal and Google, have also entertained banking ideas. In fact, they’ve joined forces, creating a lobbying group called “Financial Innovation” together, according to American Banker.
Below are some of the highlights of the Marketplace Lending Securitization Tracker for Q3:
This quarter saw six marketplace lending securitizations with quarterly issuance of $2.6 Bn, representing 7.6% growth in issuance over 3Q 2016. To date, cumulative issuance equals $23.8Bn across 96 deals.
Lending Club (NYSE:LC) issued its first deal with prime loans with borrowers having FICO scores of at least 660. The weighted average FICO score on this deal is 692, which is a shift in borrower profile as MPL lenders seek out higher quality borrowers.
All deals this quarter were rated. DBRS continues to lead the rating agency league table, while Kroll dominates the unsecured consumer sub-segment. We see continued engagement from the top 3 ratings agencies like Fitch, with their rating of PMIT 2017-2A. Goldman Sachs, Deutsche Bank, and Morgan Stanley continue to top the issuance league tables with over 49% of MPL ABS transaction volume. College Avenue, a nascent MPL student loan originator, issued its first securitization CASL 2017 -A, managed by Barclays.
Spreads at issuance are marginally tighter in the consumer space on higher rated tranches. As priced 14bps tighter on average, while Bs and Cs priced 1-2bps wider. In the student space, As priced 51bps wider, while Bs and Cs priced 46bps and 61bps wider respectively.
Credit support requirements remain stable as rating agencies get more comfortable with collateral performance. We see deterioration in credit performance, but investors are well protected due to structural features and senior tranches deleverage rapidly to gain greater protection. Demand remains robust in this sector.
Goldman Sachs purchased $300Mn of solar loans from Mosaic. It would be interesting to see if they would participate in future Mosaic securitizations, as they have in the Marlette transactions. 3Q17 saw a benign macro environment and low volatility. The Fed announced the beginning of its balance sheet reduction program to start in October, and prepared the market for an interest rate hike at the December meeting.
Download the PeerIQ Marketplace Lending Securitization Tracker Q3 here.
For decades, the three major credit bureaus, along with a smaller fourth player, Innovis, have operated in the shadows of Americans’ finances.
Here’s a quick look at a timeline:
1960s: TransUnion’s original business was not compiling credit data on consumers. It bought a data collector, Credit Bureau of Cook County in 1969.
1970: Congress passed the Fair Credit Reporting Act, aimed at regulating the reporting of credit information.
Around 1970: TransUnion started using automatic tape-to-disc transfer to compile data, which was a lot faster than entering data manually. TransUnion later was the first bureau to offer banks, credit card companies and other creditors online access to data.
1988: TransUnion gains a nationwide presence. Credit reporting takes off.
1989: FICO scores as we know them were introduced.
March 2000: FICO creator Fair Isaac Corp. took legal action against an online lender, E-Loan, after E-Loan provided loan applicants with their credit scores.
September 2000: It wasn’t until this time that consumers could pay about $8 to the credit bureaus to get their own FICO credit scores, which had a top score of 850.
2003: Congress amended federal law to require the credit bureaus to give consumers a copy of their credit reports at no cost once a year.
2006: Equifax, TransUnion and Experian formed a joint venture to introduce Vantage scores, which were quite different than FICO scores.
2013: Discover, First National Bank of Omaha and a couple of other major issuers became trendsetters by providing credit card customers with their FICO credit score every month as part of their statement.
2014: The Consumer Financial Protection Bureau, a financial regulator, said it fielded 31,000 consumer complaints in 16 months. About 75 percent of the complaints concerned information in credit files that consumers said was inaccurate.
Jan. 2017: The CFPB said Equifax and TransUnion lied to consumers about the credit scores they were being sold, and ordered Equifax and TransUnion to pay $17.6 million in restitution to consumers and imposed fines of $5.5 million.
March 2017: Experian joined its counterparts and got busted by the CFPB for lying about the credit scores it peddles to consumers.
Sept. 2017: Equifax makes a bombshell disclosure that a cyber thief stole personal information, including Social Security numbers and birth dates, for 145 million people. It’s by far the biggest data breach in U.S. history.
RealtyShares, a leading online marketplace for real estate investing, has deployed more than $10.1 million for a pair of commercial real estate transactions in Texas, collaborating with two different sponsors to provide fast and flexible financing for their projects.
RealtyShares secured a $2.4 million equity investment for a 302-room, full-service Sheraton hotel in Irving, Texas.
The hospitality equity transaction was sponsored by The Buccini/Pollin Group, a real estate acquisition, development and management company with four offices across the U.S. and more than $1 billion under management. Along with its hotel management affiliate, PM Hotel Group, Buccini/Pollin has acquired and developed 40 hotel properties, and possesses experience managing all aspects of project acquisition, finance, development, construction, leasing, operations and dispositions.
Global Debt Registry (GDR), the asset certainty company known for its loan validation expertise, today announced the successful completion of its Service Organization Control [SOC] 1 Type II and SOC 2 Type II attestation reports. Performed by KirkpatrickPrice, the independent audit confirms GDR’s internal security controls meet the American Institute of Certified Public Accountants’ (AICPA) applicable Trust Services Principles and Criteria. These latest verifications reaffirm GDR’s position as a leader in the online lending space for security and operational integrity in providing asset certainty and validation through its suite of digital due diligence solutions.
The SOC 1 Type II audit assessed GDR’s consistent application of internal controls and processes to protect consumer data, maintain operational integrity and comply with industry regulations over a six-month period. The SOC 2 Type II review compared the strength of those internal policies and controls with the AICPA’s own Trust Services Principles of security, availability, confidentiality and processing integrity. The SOC 2 Type II attestation provides a comprehensive and integrated assessment of an organization’s data security and integrity control framework to industry stakeholders — and is missing from organizations which choose to obtain a SOC 1 Type II exclusively and point to their cloud provider’s or vendors’ SOC 2 Type II attestation reports.
The new regulation, announced this week, could significantly restrict lenders of short-term, very high-interest loans, known as payday loans. The practice has long been criticized by Consumers Union, the advocacy and mobilization division of Consumer Reports.
Consumers, in fact, may have better alternatives with community banks and credit unions. And experts say the CFPB’s new rule could pave the way for even more lending by these types of financial institutions.
The payday lending rule is set to take effect in July 2019, unless it is rolled back by Congress. The Congressional Review Act gives Congress 60 days from the time a new regulation is published in the Federal Register to rescind it.
Assuming the rule remains in effect, it’s unclear whether the bulk of the payday industry could adapt. Some payday lenders are changing their practices already, creating less risky, longer-term loans.
Regardless, two types of consumer lenders that are exempt from the CFPB rule—community banks and credit unions—could step into the breach to serve payday loan clients.
The nation’s nearly 6,000 community banks are another potential source for small loans. But community banks don’t actively market their small-dollar loans, explains Lilly Thomas, a senior vice president and senior regulatory counsel for Independent Community Bankers of America, based in Washington, D.C. Rather, they respond to inquiries by individual customers.
But, she added, the CFPB rule changes could change that.
By the CFPB’s own estimates, the regulations as written will cut the number of short-term loans in the U.S. by more than half, and industry estimates put that figure closer to 80 percent. Other than perhaps the very largest players in the game, most loan lenders can’t soak that kind of volume loss, since payday lending (contrary to public opinion) is not a high-margin business to start with. The average storefront lender clears about $37,000 in profit – and under the new regulations, that annual profit would become a $28,000 loss, according to an economic study paid for by an industry trade association.
Payday Lending (And Its New Rules At A Glance)
Payday lending is a big segment in the U.S., as storefront short-term loan lenders outnumber McDonald’s locations, and collectively lend out about $46 billion per year in loans to about 12 million borrowers.
The typical payday lending customer, according to the Pew Charitable Trusts, is a white woman aged 25 to 44.
Roughly 22 percent of borrowers renewed their loans at least six times, leading to total fees that amounted to more than the size of the initial loan.
Payday lenders do in fact collect a lot of money in fees – about $7 billion as of last year. Default rates are estimated at 20 percent on the low end, while at a mainstream financial institution (FI), that rate is a lot closer to 3 percent on average.
Cannon, the firm’s global director of research and chief equity strategist, agreed. Today, KBW, traditionally focused on bank equities, also covers firms like PayPal, Square, and Green Dot. And a bit over a year ago, KBW, in cooperation with Nasdaq, launched the KBW Nasdaq Financial Technology Index, an eclectic mixture of 50 publicly traded fintech firms across multiple industry categories.
“We expect that bank M&A will shift over time to bank/fintech M&A with the largest banks looking to acquire successful fintech firms. This will be pushed by the limitations on bank acquisitions by the largest banks, and by the need of fintech firms to partner with banks to expand their operations. While regulators are looking at a new fintech bank charter, we expect that to be limited in scope.”
Banking Exchange:What started you thinking about a bank/fintech M&A trend?
I’ve been puzzled by the lack of new start-ups since the financial crisis. Most of the discussion around this has concerned regulatory constraints. But as I dug into this, I began to think that maybe the historical entrepreneurship in finance—traditionally folks starting new banks to get their economy going—has shifted from the banking sector to Silicon Valley.
Banking Exchange:Do people just not want to invest in new bank charters anymore?
In the wake of the financial crisis, a lot of capital—such as from private equity firms—that might have gone into new charters went into recapitalizing existing banks. Postcrisis, there certainly was a regulatory element, insofar as increased regulation and FDIC’s reluctance to insure new banks. But while people talk about that, I haven’t heard about people applying for charters and getting turned down by FDIC.
Mid-sized banks are looking for creative ways to build loan books. They already have an advantage in lending to small- and mid-sized companies and in doing commercial real estate loans. But they’re starting to see those sources of assets ebb. And they, too, will be looking toward asset generation from electronic delivery through fintech-type operations.
Banking Exchange:There is also the opposite trend—some of the fintechs, such as Varo, SoFi, and Square are seeking bank or industrial bank charters. Do you see that gaining momentum?
A year or so ago, my son-in-law was refinancing his student loans. Now, remember that part of the key to SoFi’s initial, extremely rapid growth was this: They cherry pick the government program borrowers. They will give strong borrowers a 4% loan to replace the government’s 7% all day long.
In the second half of 2016, the fintech-credit bubble began to show signs of losing air when investors and funders signaled declining confidence in fintechs by withdrawing their investments — triggering some fintech closures. In trying to scale up, some providers went outside their core markets and struggled as their credit models failed (e.g., CAN Capital). Some faltered in attempting to diversify into different loan types, while others — which are now retrenching (e.g., LendingClub) — struggled with costs far outrunning revenues.
The market is ripe for consolidation and beneficial partnerships. Indeed, the remainder of 2017 and 2018 will see more partnerships between the banks and fintechs for the following three reasons.
The influx of technology into the alternative lending industry has drastically changed the way small businesses access financing. As the co-founder of the online alternative lending platform Kabbage, Kathryn Petralia has been helping to lead this change.
Q: What drew you to the alternative lending space? Why did you think the market would support a lender like Kabbage?
A: I’ve been in alternative lending since the late ’90s.
Q: When a space is so crowded, like yours, what can you do to differentiate yourself?
A: Additionally, we are the only lender to offer SMBs the option to apply, qualify and draw funds entirely through a mobile app. Our Kabbage card allows qualified customers to draw from their line of credit at checkout or any point of sale (POS).
Kabbage is also unique as we license our technology to global banks, providing them more reach and a better user experience to serve their small business customers in a meaningful, cost-effective way. We have bank partnerships with Santander, Scotiabank and ING.
Q: What makes alternative lending an attractive option for small businesses?
A: It’s much faster and easier than traditional processes, and the anonymity of an online application process takes some of the stress out of what is traditionally a very anxiety-ridden experience.
CommonBond, a financial technology company that helps students, graduates and employees pay for higher education, today launches Women in Tech Week, which runs through October 15. Together with partners including Betterment, Birchbox, Duolingo and others, CommonBond spent the last several months creating Women in Tech Week to recognize the contributions of women in technology and support the next generation of women leaders.
Women in Tech Week consists of three components:
1. A whitepaper on what women want in the tech workplace: CommonBond commissioned a survey of over 600 women in tech to learn what companies can do to attract and retain women, as well as create environments where women can thrive. The research found women want to see their companies implement the following changes, in order:
More women in leadership roles.
Better long-term career planning processes.
Additional training and professional development opportunities.
2. A social media campaign to support the next generation of women in tech: CommonBond has partnered with Girls Who Code to help fund the next generation of women technologists. CommonBond will donate to Girls Who Code for each social media post that:
Answers the question “Why are you proud to be a woman in tech?” or “Why are you proud to support women in tech?”
Includes hashtag #2017WITW.
3. A female founders event to encourage and inspire women in tech: On Ada Lovelace Day, a holiday on October 10 that celebrates the achievements of women in STEM, the co-founders of companies such as The Muse, PolicyGenius and WayUp will share their stories with students and professionals pursuing technology careers at an event in New York City.
New rules issued this past week by the federal Consumer Financial Protection Bureau are meant to rein in payday and auto title lenders. The rules require enhanced credit checks for some loans and cooling off periods after three loans in a row to a single borrower.
“In Ohio, payday and auto title lenders are not operating under the intended statute,” Horowitz says. “They’re using a loophole that lets them operate as loan brokers.”
A 2008 law capped yearly interest rates at 28 percent. But the Ohio Supreme Court has upheld the loophole used by lenders.
Led by tech innovators like Betterment, SigFig and Wealthfront, the more than 200 current U.S. robo-advisors in existence collectively boast some $53 billion in assets under management, with global robo assets poised to surpass $2.2 trillion by 2020. With such explosive growth in this space, many traditional full-service financial advisors feel compelled to beat their drums louder, when meeting prospects and onboarding new clients.
Despite the robo phenomenon, studies show that most individuals still value human interaction over technology. According to a survey conducted by online student loan marketplace LendEDU, 46.41% of millennials are working with a financial advisor, while only 24.30% have used a robo-advisor.
Furthermore, of the three-quarters of millennials who have yet to take the robo plunge, 61.58% say they’re reluctant to do so because they’ve never heard of robo-advisors, suggesting that general awareness still has a way to go. Finally, 68.92% of those polled said they believe financial advisors are more likely to yield greater returns on their investments.
Another program that gets high marks from founders is the Financial Solutions Lab (FinLab), an offshoot of the Center for Financial Services Innovation, a 13-year-old nonprofit focused on serving unbanked and underbanked customers.
Broadly speaking, it’s a 2.5-year-old program that aims to find and nurture fintech startups that are helping Americans save, access credit and build assets, and it is itself fueled by a $30 million, five-year grant from JPMorgan.
Among those startups it has worked with so far is Propel, a startup that helps people who receive food stamps manage their benefits.
Another company that’s currently a part of the program is Dave, an app that alerts consumers ahead of an upcoming overdraft and can advance them money.
Jornaya, the fast-growing consumer journey insights platform, today announced that LendingTree®, the nation’s leading online loan marketplace, has integrated TCPA Guardian from Jornaya to manage compliance risk associated with the Telephone Consumer Protection Act (TCPA).
Jornaya’s TCPA Guardian integrated with LendingTree’s marketplace provides lenders with ability to validate that the consumer was shown necessary and approved disclosures, including monitoring the size, text, and overall visibility of the necessary TCPA disclosure. What’s more, the solution documents the proof of that consent, allowing both LendingTree and its lenders to deter and help defend the costly and rising number of TCPA complaints.
Technology and regulation are intersecting in ways that create uncertainty in a number of areas, but for those who work in compliance, the big question is whether advanced technologies like artificial intelligence and blockchain will ultimately replace people.
When BBVA Compass recently began using robotic process automation to carry out specific pieces of compliance, such as retrieving statements, employees were worried.
New Leaf Communities is seeking $4,500,000 in Preferred Equity. The sponsor is offering a 10% preferred return with 8% as a current pay and 2% accrued. RealtyeVest, who is exclusively housing the offer on their crowdfunding platform, will raise the capital in a series of Class A, B and C stocks of $1.5 million each.
It’s first come first serve as the tranches will close once the total for each is raised. Participants in the Class A tranche will receive an 80/20 waterfall participation after the 10% preferred return. The Class B tranche will receive a 70/30 waterfall participation after a 10% preferred return. Lastly, the Class C tranche will receive a 60/40 waterfall participation after a 10% preferred return.
According to proponents, the new rules are a real positive for consumers. They see the following as pros.
Requiring lenders to ensure that borrowers can repay loans protects them from a cycle of debt.
While some lenders will be prohibited, consumers can still borrow from those that meet the new requirements.
Voters generally prefer stricter guidelines for payday lenders.
The new regulations will stop lenders from exploiting loopholes in the law.
Limiting the number of times a loan can be rolled over limits the effective APR.
Preventing multiple attempts to withdraw from bank accounts will stop excessive overdraft charges for consumers.
The payday lending industry, the Community Financial Services Association of America (CFSA), researchers at Pew Charitable Trusts, the banking industry and even some consumer advocates have pointed out what they see as the cons of these new rules.
The proposal exceeds the authority given CFPB by Congress and will be subject to expensive lawsuits.
The new rules still allow payday loans with interest rates of 300% or higher.
Banks and credit unions will be discouraged or prevented from entering the market with lower-cost loans.
Ultimately, the rules will inhibit consumer access to credit, driving them to far worse alternatives.
Many payday lenders will be forced out of business, costing jobs and creating credit “deserts” in areas where payday lending currently thrives.
Losing the ability to roll over loans will hurt consumers who need more time to pay off debt.
Revenues for the $6 billion payday loan industry will shrivel under a new U.S. rule restricting lenders’ ability to profit from high-interest, short-term loans, and much of the business could move to small banks, according to the country’s consumer financial watchdog.
Under the new rule, the industry’s revenue will plummet by two-thirds, the CFPB estimated.
According to a 2016 Funding Circle survey, about half of small business owners plan to take less than three days off during the entire holiday season; in fact, nearly 70 percent confess that they at least check emails on Thanksgiving Day, when most businesses nationally close.
Speaking at the LendIt conference in London, Jaidev Janardana (pictured), chief executive of Zopa, said banks have focused too much on products that help their business rather than the customer.
He revealed that Zopa Bank would offer unsecured personal loans with no early repayment charges and credit cards with no introductory offers but a flat rate as well as savings and investments that prioritise existing customers.
It will also offer auto-loans, allowing users to do a soft-search for products.
Speaking to ITProPortal, Luke Griffiths, MD of Klarna UK, noted that consumer flexibility in terms of payment methods is helping change merchant habits too.
Griffiths revealed that just shy of three million customers in the UK will have used Klarna’s services in some form, with the company counting the likes of the Arcadia Group and JD Sports as clients here.
This includes a “pay after delivery” option, which allows consumers to order their goods, receive them, but only pay after either 14 or 30 days if they are fully satisfied. Targeted mainly towards the fashion online retail space, Griffiths notes that this service has seen great pick-up from both merchants and customers, with the former seeing increased conversion and a drop in returns (as buyers become more confident that they will only pay for the goods they want to keep) and the latter getting a more successful online transaction and “turning the sitting room into the fitting room”.
FUNDING Circle co-founder Samir Desai (pictured) has ruled out launching a bank as he outlined the advantages of running a peer-to-peer platform over traditional financial models.
He said banks would find it hard to keep up with emerging technology such as artificial intelligence or machine learning due to the level of regulation.
Desai cast doubts on the ability of traditional banks to move into the online small and medium sized (SME) lending lending space, claiming Germany’s Commerzbank had seen loans underperform since entering this area.
Peer-to-peer business lending platform ArchOver announced on Monday it has nearly doubled its overall lending in the first nine months of 2017. The company reported that since 2017 its total lending has reached £21.39 million, bringing its cumulative total that has been lent to date to over £48 million.
Linked Finance, Ireland-based peer-to-peer lending company, announced on Monday the launch of its new type of pension account. The account allows holders of self-managed pensions to make P2P lending to Irish SMEs part of their pension investment portfolio.
One of the UK’s leading financial technology specialists, The ID Co., has announced it is the first software specialist to offer lenders the capability to calculate and base lending decisions on customers’ real earnings, known as verified income.
UK based Fintech, The ID Co., says it is the first software specialist to offer lenders the capability to calculate and base lending decisions based on customers’ real earnings or verified income. The ID Co. has major clients in both the UK and North America including a large UK retail bank, Prosper Marketplace, Marlette Funding, OakNorth Bank, eMoneyUnion, and Fair Finance.
Recently, the official WeChat of Shenzhen Internet finance association issued a notice concerning the exit guide of shenzhen’s marketplace lenders (solicitation draft). It was known as the first exist guide for P2P lending platforms in China. According to the notice, this guideline was drafted to direct and standardize the P2P lending institutions to smooth out of the P2P loan industry, as well as to protect the legitimate rights and interests of lenders, borrowers and P2P institutions. Before officially released, the exposure draft of guide is soliciting opinions from the industry.
Already, China has climbed to account for 23% of the world’s total 214 unicorns (compared with the U.S. at 50% and India at 9%). China claims such highly valued companies as ride-hailing service Didi, hardware innovator Xiaomi and online lender Lu.com plus newcomers to the 2017 list: bike-sharing service MoBike, news aggregator Toutiao and e-vehicle maker Neo.
Moreover, China is getting with a new class of billion-dollar valued companies, so-called decacorns or startups with valuations past the $10 billion mark. Of 14 current decacorns, Silicon Valley has 5 and so does China — four in Beijing and one in Shenzhen, according to an analysis by GSR Ventures shared by managing director Richard Lim at the recent HYSTA conference.
How and where will the next generation of unicorns be formed? Research by GSR shows that the unicorn action is in China by Chinese returnees. There were 30 unicorns founded by Chinese in China versus 9 U.S. unicorns founded by Chinese.
Moody’s Investor Service has upgraded 4Finance‘s credit ratings to B2 from B3. The upgrade comes as 4finance says it has passed € 5 billion in loan originations. The 4finance S.A. senior unsecured issuer rating was also upgraded to B2 from B3. The outlook on all ratings is stable.
A recent study from Forex Bonuses finds the countries among the 20 largest economies who are adapting quickest to using cashless systems like phones and contactless cards – revealing that Canada narrowly edges out Sweden for the top position.
Investigating twenty of the world’s most significant markets, the study looks into contactless card saturation, number of debit and credit cards issued per capita, usage of cashless methods, growth of these cashless payments, and the proportion of people who are aware of which mobile payment services are available.
The top position has gone to Canada, who, while only having contactless functionality in 26% of their cards (compared to 41% in the UK and 56% in China) and the lowest number of debit cards per capita included in the research (0.7), were found to have over two credit cards per person, a figure only exceeded by their neighbours in the US, who had just under 3.
Likewise, the majority of their payments were made using cashless means at 57% of transactions, outmatched only by 2% in both Sweden and France. The UK reached 52% on this scale, while China, despite the majority of cards being contactless, used cashless methods in only 10% of transactions. China were also the most educated on mobile payment services, with 77% of survey respondents claiming they were aware of the options available to them in this regard. In comparison, only 47% in the UK claimed the same.
In this week’s B2B venture capital breakdown, alternative lending for small- and medium-sized businesses (and their employees) is the clear winner.
The company, based in the U.K., recently announced about $52.5 million by Legal & General, while Blenheim Chalcot also participated, according to reports. The funding round will need approval from the Financial Conduct Authority, reports added.
This supply chain financing company has been mum about the funding, with reports only catching onto the investment of about $20 million (so far) through a Securities and Exchange Commission (SEC) filing. According to reports, the firm plans to raise a total of $33.29 million, though it is unclear who provided the funding or when Taulia will officially announce the raise.
Colombia’s Siigo, which provides accounting and administrative software for small- and medium-sized businesses, raised an undisclosed sum late last week by Accel-KKR, reports said.
One of the biggest and most profitable sectors of the financial industry is the lending sector. Most financial institutions have used the existing models to create new ones that better fit their business models and reach their profit targets.
Another major role played by banks is to facilitate the transfer of funds between parties. Banks have been rumored to make at least $4 billion annually just from fees obtained during funds transfers.
4. Facilitating speedy payments
For a business to thrive, its invoices should be paid on time and in a prescribed way. One of the things that make businesses go under is the accumulation of bad debt. When invoices are not paid on time, the business suffers because the business owner must find other means of paying his creditors.
Singapore’s OCBC Bank is integrating Siri to help conduct corporate banking across 12,000 customers. Voice commands send payments and can also inquire about account balances. Alexa is now available in India, and will soon debut in Japan later in the year.
Peer-to-peer (P2P) lender SocietyOne has announced three lending milestones for 2017 with the year not even over yet, showing how Australians are embracing this innovative way to borrow and invest.
This is a record for SocietyOne, as it has now originated more than twice the loans of the company’s nearest competitor and had seven successive quarters of growth.
The first three-quarters of 2017 also saw a record amount of funding made available by investor funders. The total number of funders has risen to 320 since SocietyOne’s inception and there is $61 million of committed available funding as at 30 September 2017.
Online lender Spotcap has announced it has issued more than $180 million in credit lines to small- and medium-sized enterprises (SMEs) globally in just three years. The lender offers lines of credit up to $250,000 and has been operating in Australia since 2015.
With the Reserve Bank of India spelling out guidelines for regulating peer-to-peer (P2P) lending, many of these lenders are looking at ways to comply with the norms by restructuring their business models. Further, companies find Rs 10 lakh cap on lending restrictive, given the phenomenal growth of the sector in the past couple of years.
Banks and NBFCs usually offer personal loans to a salaried employees having minimum income salaried between Rs 1.20 lakh – to Rs 2.40 lakh with loan eligibility salaried between Rs 15 lakhs and Rs 20 lakhs.
Bengaluru-based fintech startup SlicePay has raised $2 Mn as part of its ongoing Series A funding round. The investment was led by Japan-based Das Capital, Simile Ventures from Russia and few undisclosed angel investors.
Existing investor Blume Ventures also participated in the round, who earlier invested $500K in association with Tracxn Labs in February 2016. With the raised funds, SlicePay plans to expand in three more cities, as well as make some senior-level hiring.
Lending activity will gather pace on peer-to-peer (P2P) platform with the sector getting NBFC status even as the compliance burden on them may eliminate some entities out of the market, industry players say.
The guidelines from the RBI norms for disclosures are welcome. The disclosures on how companies are calculating credit scores are welcome to borrowers. Right now, with many companies looking to build credit scores through by looking at cash-flows and information on how the platforms collect this information is crucial. Companies such as EarlySalary are building credit profiles based on information on social media. Meanwhile, there are untested methods which profiles people psychologically on seeing if they are eligible for a loan.
Singapore’s OCBC Bank wants to use Siri to help corporates do their banking.
OCBC said in an announcement on Wednesday (Oct. 4) that it is integrating its Business Mobile Banking app with Apple’s voice assistant Siri for more than 120,000 corporate customers. The integration means professionals will be able to initiate B2B payments and funds transfers to other OCBC business accounts using Siri voice commands.Singapore’s OCBC Bank wants to use Siri to help corporates do their banking.
One of South Korea’s leading P2P lending platform operator Lendit appears to have taken advantage of its maturing big data. The accumulated volume of personal loans originated from the firm doubled in six months as of early September to some 70 billion won ($61.6 million), after some 28 months of operation.
The database allows an individual lender to invest 10 million won at maximum in a “customized” package composed of possibly hundreds of bonds in different interest rates, while promising the lender a return of between 6 percent and 10 percent including tax and commission fee.
Kim, 31, believes Lendit could help mitigate the rapid growth of the national household debt, projected to have exceeded 1,400 trillion won in the third quarter. Household debt in Korea is considered a powder keg of the national economy amid looming signs of central banks ending expansionary monetary policies. Consumer loans take up nearly 20 percent of all household debt in Korea.
Argentina-based peer-to-peer (P2P) lending platform Afluenta recently announced during its fifth-anniversary celebration it was launching commercial loans to the fifth version of its lending platform. According to the lender, in the latest version, it will add its own proprietary credit scoring and introduces commercial loans for people with commercial activities, which is noted to usually not served by traditional banks.
Micro-lending and small business financing are a critical component of economic growth around the world, and the need for access to low-cost capital is especially important in developing countries.
The Catch-22 is that these countries are also the ones where the lending markets are the least developed, and where most financial institutions are reluctant to lend money to people who don’t have any credit history (what the industry calls “thin-file” customers).
The problem is especially acute in Mexico, where only 39 percent of the population has a bank account and 75 million people still have no access to the kind of financial services and lending support they would need to start micro- and small- businesses.
In Ontario, the payday-loan industry offers sums of cash of less than $1,500 for short terms — less than 62 days — at very high interest rates: there are currently 657% on an annualized basis on the average 10-day term, down from 766% before the regulations took effect.
These lenders fill a unique niche in Ontario’s lending market for customers known as ALICE — an acronym for Asset-Limited, Income-Constrained, and Employed. More than two-thirds of ALICEs earn less than $50,000 per year. And while payday lenders’ reputation for being the somewhat shifty cousins of banks is not entirely undeserved, they nonetheless provide a real and needed service to people who, for a variety of reasons, can’t or don’t have the cash to meet their needs. The majority of people who take out a payday loan are doing so to avoid late charges, NSF fees, or maintain power in their digs.